Many market participants are sharpening their gaze as of late, and enter sectors of the markets that remain near seminal levels of support (now seemingly transports, utilities and building and construction). For the prospective ‘Tech’ participant, sudden sell-offs can create rare low-downside risk/reward setups, usually available once or twice per year, depending on time-frame. We’ll take a look at several charts across the broad transportation arena, which appears to be the leading candidate, as far as I can tell, to rally for the remainder of 2019.
SPDR S&P Transportation ETF (XTN)
The weakness in the market has sent the large-transport stocks to major long-term levels of support. As the weekly chart of the SPDR S&P Transportation ETF (symbol: XTN) shows below, the price has come in to the combined support of its 200-day moving average and an ascending triangle. At this time the large-transport bulls appear to be in control of the primary trend, and the current weakness could be a gift for buyers of the year. Technical analysis types will be paying close attention to the price as it bounces off these current levels and then tries to take out resistance on the upside above $64. We have a target at $78, which would be equal to the height of the pattern plus the entry point. If the price closes above the breakout point before the end of the year, we will raise the target to $78.
XPO Logistics, Inc. (XPO)
The XTN ETF’s #1 holding is XPO Logistics, Inc. (XPO). It may be a stock that begins to attract the interest of traders over the next couple of days. The price of the stock has traded beneath its long-term resistance of the 200-day moving average for much of the past 12 months. However, the recent break clear of the down trendline and the 200-day moving average is a tell-tale bullish sign that the downtrend has begun to reverse. In fact, recent weakness presents traders with a risk/reward scenario that is attractive from the long side, with a very clear indication of where stop-loss orders might be placed should the market weaken further.
United Parcel Services, Inc. (UPS)
In the transportation sector, United Parcel Services, Inc. (UPS) is probably the most recognisable name. So far, earnings are outpacing the pandemic, which has allowed it to accelerate during the past few weeks. The price is now cycling above the 200-day moving average, and the bulls are slowly being encouraged to strengthen their stance at the same time as the resumption of the wave of higher lows and higher highs tells everyone that bull power is intact. And at the $110 level, expect bullish aggressiveness to increase. Despite the recent levels of support, technical analysts will be looking for where the 50-day moving average approaches crossing the 200-day moving average since this bull crossover is what triggers many long-termed buy signals for a long run higher. It could be a big signal since this stock hasn’t seen this level of technical optimism since 2018. It could be the signal that lifts the price back toward the 2018 high.
The Bottom Line
The weakness in the indices might be giving strategic buyers a chance to buy into targeted segments such as transportation, utilities or building and construction. Based on the charts reviewed, we should focus on the transportation stocks. Nearby support levels combined with good risk reward entries suggest that this segment might be ready to make a big move higher.