-- MIND THE GAP AND THE RELATIVE PERFORMANCE, TRANSPORTS BOUNCE AT FIB RETRACEMENT, TRUCKING AND AIRLINES LEAD, 3 TRUCKING LEADERS, 2 AIRLINE LEADERS, 3 LEGACY AIRLINE STOCKS --
MIND THE SMALL CAP GAP AND RELATIVE PERFORMANCE... Link for today's video. The Russell 2000 iShares (IWM) and the S&P SmallCap iShares (IJR) both gapped up last week and these gaps are holding. Moreover, small-caps have been showing relative strength since mid October and their respective price relatives hit new multi-month highs. Chart 1 shows IWM breaking out in early February, testing this breakout zone with a pullback in March and gapping up last week. The diamond/triangle breakout is medium-term bullish and the gap is short-term bullish. IWM dipped into the gap zone on Friday, but recovered and closed near the high of the day. This reinforces the validity of the gap zone and makes it the first support area to watch. A close below 121 would fill the gap and argue for a reassessment.
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Chart 1
The indicator window shows IWM relative to the S&P 100 ETF (small-caps relative to large-caps). This ratio hit its highest level since early July and small-caps are outperforming large-caps right now. John Murphy noted relative strength in small-caps last week and noted that small-caps tend to outperform when the Dollar is strong. Chart 2 shows the S&P SmallCap iShares (IJR) with similar characteristics.
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Chart 2
TRANSPORTS BOUNCE AT FIB RETRACEMENT... Chart 3 shows the Transport iShares (IYT) getting a nice bounce off the 62% retracement area over the last four days. The ETF surged in October-November and then corrected from December to February. I think this is a correction because the ETF hit a new high in November and the falling wedge is typical for corrections within uptrends. This correction showed signs of ending when IYT surged above the upper trend line in late February and exceeded the mid January high. The red lines show a Raff Regression Channel marking the pullback into early March and the ETF broke resistance with a surge over the last few days. This suggests that the bigger uptrend is reasserting itself and chartists can mark support in the 157.5-158 area. The indicator window shows IYT relative to SPY using the price relative (IYT:SPY ratio). Notice how this ratio turned up last week and hit its highest level since late January. This means IYT is starting to show relative strength in March. Chart 4 shows the Dow Transports ($TRAN) for reference.
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Chart 3
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Chart 4
TRUCKING AND AIRLINE INDICES LEAD RRG... The transports can be divided into four groups: airlines, delivery services, railroads and truckers. Chartists can easily compare performance for these four by putting them in a Relative Rotation Graph (RRG). Chart 5 shows a RRG with the DJ US Airline Index ($DJUSAR), the DJ US Trucking Index ($DJUSTK), the DJ US Delivery Services Index ($DJUSAF) and the DJ US Railroad Index ($DJUSRR). These four are compared against the S&P 500 (benchmark) and I am using a daily RRG for a shorter term perspective (as opposed to a weekly RRG). Of these four indices, airlines and trucking are the most interesting from a bullish standpoint. Trucking is the strongest group because it is in the leading quadrantand clearly outperforming the S&P 500. The airline index is interesting because it is in the improving quadrant and heading northeast towards the leading quadrant. The index will cross into the leading quadrant if/when the RS-Ratio crosses above 100. You can read more about RRG in our ChartSchool article.
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Chart 5
Chart 6 shows bar charts for these four industry groups. $DJUSTK broke out in mid February, held the breakout in March and surged above its February high today. $DJUSAR is getting a bounce off support in the 230-240 area. $DJUSAF, which is dominated by UPS and FDX, is bouncing off the early February low. $DJUSRR broke out in early February, pulled back into March and bounced today. This bounce, however, looks the weakest of the four.
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Chart 6
THREE TRUCKING LEADERS... Chart 7 shows CH Robinson (CHRW) hitting new highs in December and then consolidating with some volatility in January-February. Despite this volatility, the trading from late December to late February does look like a consolidation within an uptrend. The stock broke out in late February, fell back last week and renewed the breakout with a surge the last three days.
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Chart 7
Chart 8 shows JB Hunt (JBHT) breaking out to new highs in late February and mid March. Chart 9 shows Werner Enterprises (WERN) hitting a new high in late February, pulling back into March and surging again the last four days.
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Chart 8
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Chart 9
TWO AIRLINE LEADERS... The next charts show five airline stocks and these five can be divided into two groups. Alaska Airlines and SouthWest have been the lean and mean leaders for some time. United Continental, American and Delta represent the legacy carriers that cover the globe. Chart 10 shows Alaska (ALK) in a clear uptrend after a big breakout in October and new highs throughout December-January. The stock corrected in early February and started moving higher again in mid February. Chart 11 shows SouthWest (LUV) breaking out to new highs in mid January, consolidating into March and breaking out with a move over the last three days.
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Chart 10
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Chart 11
THREE LEGACY AIRLINES... The three big carriers are not as strong as LUV and ALK, but all three recorded new highs in January and I think the long-term trends are still up. Weakness in February-March is viewed as a correction within this bigger uptrend. Chart 12 shows American Airlines (AAL) getting a bounce off its support zone and breaking the late January trend line. Chart 13 shows United Continental (UAL) hitting new highs into December-January and then consolidating with a triangle. A breakout at 70 would end the triangle. Chart 14 shows Delta (DAL) with new highs and then a falling wedge correction. The stock is challenging the upper trend line with a bounce the last few days.
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Chart 12
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Chart 13
