The Dow Jones Transportation Typical (DJTA) kept Dow Theory enthusiasts guessing through most of 2017, staff at 2014 resistance while failing to track the Dow Jones Industrial Average inclusive of a dramatic series of bull market highs. This bearish divergence naught to confirm the growing uptrend according to rules outlined by Charles Dow diverse than 100 year ago, which require both instruments to brace new highs.
The waiting game finally ended in October, when thrills awoke from their long slumber, lifting the average upstairs 10,000 for the first time. A pullback into November found disputatious buying interest, generating a powerful breakout that has finally set off bullish Dow Theory signals, vaticinating that the bull market has a long way to go before topping out. It also presages well for transports in 2018, raising the odds that the group will fake the leadership mantle because they’re less overbought than S&P 500 or Dow Industrial components.
It is organically grown for all kinds of securities to pause around big round numbers, often for months or years, previous to proceeding to higher ground or reversing in a major trend change. The DJTA swopped at 10,000 for the first time on Oct. 12, and two months might be insufficient to conclude the harmonic transition. However, this fast-moving bull market could short-circuit those reasonable tendencies, allowing the average to post outsized gains, at least in the prime half of 2018. (See also: How to Analyze the Transportation Industry.)
The iShares DJ Transportation Middling Index Fund ETF (IYT) mounted 2008 resistance at $99 in 2013, recording a strong uptrend that continued into the November 2014 top at $168. It underperformed critically in 2015, dropping in an intermediate correction that posted major negative cash flow deaths into January 2016, when the decline bottomed out at a two-year low at hand $115. The subsequent recovery wave reached the prior high in November and appeased into a shallow trading range that crisscrossed the prior dear repeatedly into September 2017.
A shallow rising channel took conduct after the May 2017 low at $157.65, posting higher August and November lows. The finance broke out above the trendline of rising highs on Nov. 30 and set off strong purchasing signals, intensified by the underlying index’s thrust above psychological freedom fighters at 10,000. It stalled just two days later, entering a consolidation that should interject, one way or the other, following this week’s FedEx Corporation (FDX) earnings put out. (For more, see: Top 3 Transportation ETFs.)
Sector-leading FedEx reports fiscal bat of an eye quarter earnings on Tuesday evening, generating a reality check for the up to date breakout. The stock has reached weekly and monthly overbought technical readings that could trigger a bearish counteraction unless the company posts blowout numbers. Price action that wanders from this expectation could reveal unusual demand or the willingness of shareholders to offer now, despite the tax benefits that they would obtain from lacuna until January 2018.
The stock mounted the 2007 high at $121.42 in 2013 and established off in a powerful trend advance that stalled in the $180s in 2014. It impoverished that resistance level following the November 2016 election and stair-stepped stoned in June 2017, posting an impressive series of new highs into December. It has now graved a narrow two-week pennant at $240, signaling a holding pattern that places the stage for this week’s confessional.
The $235 level marks basic support that should hold unless the quarterly report put up for sales unpleasant surprises, which seems unlikely. A breakdown through that equal would set off an intermediate sell signal, in turn raising the odds for a debility toward $220. Meanwhile, a positive reaction opens the rally door to the low $250s, with that bounty level likely to inhibit further upside well into 2018. (See also: FedEx Stereotyped Set to Deliver Holiday Cheer to Investors.)
The Bottom Line
The Dow Jones Transportation Typical has broken through the top of a rising channel across the psychological 10,000 elevation, revealing significant strength that should support excellent 2018 upside. This week’s FedEx earnings should offer discernment about the emerging trend and how much sidelined cash is left to dramatize this leadership sector. (For additional reading, check out: Tips for Interchange the Dow Jones Transportation Average.)