Medium term
Trade view / 06 September 2016 at 8:40 GMT

Transportation stocks look ready to break out higher

Trader /
United States

The US stock market rally of 2016 off the January/February lows in particular over the past few months has seen increasing sector and group rotation, which kept the rally intact. Transportation stocks are one group that has shown relative strength over this time, and they look increasingly ripe for a breakout higher sooner rather than later. 

On a multi-year chart, we can see that despite a 30% correction in the iShares Transportation Average exchange-traded fund IYT (IYT:arcx), from the late 2014 highs down into the lows this past January, the 2009 support line held all along on a monthly closing basis. In fact, the price action over the past three weeks has seen the IYT ETF break higher past diagonal resistance, which, all else being equal, argues for a continuation higher for the time being.

IYT ETF - support line from 2009 has held, and the price is now above diagonal resistance
iShares Transportation Average IYT
Source: Saxo Bank

The daily chart shows a rare double-inverse head-and-shoulders pattern, which by definition is bullish. Note the two necklines (blue and red) each of which has an inverse head-and-shoulders pattern as marked by the circles on the chart. The IYT ETF is visibly coiling up and ready to break higher past the red horizontal resistance line, i.e. the neckline of the smaller inverse head-and-shoulders pattern. This in turn would also wake up the beast within the larger inverse head-and-shoulders pattern, which could give the entire breakout much more velocity. 

IYT ETF is coiling up and ready to break above red horizontal resistance
iShares Transportation Average IYT Source: Saxo Bank

Management and risk description

As with most breakout trades and through the lens of technical analysis, this trade setup in transportation stocks via the IYT ETF is likely better entered upon a confirmed breakout, rather than in advance. In other words, bet on something that is already taking place (once it is taking place) rather than anticipating something.


Entry: Buy the IYT ETF or the CFD thereof at $144 or higher

Stop: $140

Target: $50 as a first upside target

Time horizon: 2-4 weeks, once a breakout occurs

— Edited by John Acher

Non-independent investment research disclaimer applies. Read more


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail