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
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
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.
Buy the IYT ETF or the CFD thereof at $144 or higher
$50 as a first upside target
2-4 weeks, once a breakout occurs
— Edited by John Acher
Non-independent investment research disclaimer applies. Read more