TRANSPORTATION ISHARES HIT FIVE MONTH HIGH -- AIRLINES STOCKS ARE MAIN REASON WHY -- AMERICAN AIRLINES AND UAL CLEAR 200-DAY AVERAGES -- WEEKLY TRANSPORTATION CHART LOOKS PROMISING
TRANSPORTATION ISHARES TURN UP... My message from last Wednesday expressed concern about the inability of the Dow Transports to keep pace with the Dow Industrials. According to Dow Theory, both Dow Averages should be rising together. A jump in transportation stocks is relieving those concerns. The daily bars in Chart 1 show the Transportation Average iShares (IYT) rising to the highest level in five months and in position to challenge its April high. A new 2016 high would put the transports in an uptrend and more in sync with the Dow Industrials. The 50-day average is trading well above the 200-day which is a bullish sign.
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Chart 1
AIRLINE INDEX SURGES 5% TO A FIVE-MONTH HIGH... Airlines are today's big winners in the transportation group. Chart 3 shows the Dow Jones US Airlines Index surging 5% today. It needs, however, to clear its July peak and its 200-day average to signal a major upturn. Expectations for higher airfares probably account for the day's strong gains.
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Chart 2
AMERICAN AIRLINES AND UAL CLEAR 200-DAY LINES... Chart 3 shows American Airlines (AAL) clearing its 200-day average and a falling trendline extending back to March 2015. It has the strongest looking chart in the group. Chart 4 shows United Continental Holdings (UAL) also clearing its 200-day. UAL still has a way to go to clear its falling resistance line. Airlines have been the weakest group in the transportation sector. Today's airline surge may start to change that, and may add some altitude to the entire transportation group.
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Chart 3
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Chart 4
AIRLINES HAVE HELD THE TRANSPORTATION GROUP DOWN... The performance lines in Chart 5 show how each transportation group has done so far this year. The Transportation Average itself is up 7.2% for the year. By contrast, the rails (19%), truckers (14%), and air freight (12%) have done much better. In sharp contrast, airline stocks are down -13% for the year. That's where the main drag has been in the transports. [Rising fuel costs this year may explain why]. Since July 1, however, airlines have been the strongest transportation group.
Chart 5
TRANSPORTS APPEAR TO BE BOTTOMING... The weekly bars in Chart 6 show the Dow Jones Transportation Average rising above a "neckline" drawn over its April/July peaks and nearing a test of its spring high. The $TRAN has already broken a downtrend line extending back to early 2015. Its relative strength line (top of chart) appears to be stabilizing near its January low. Its weekly MACD lines (below chart) are positive and have crossed over their zero line. A stronger transportation sector would be positive for the market. A lot depends on higher airline stocks.
