Transportation ETF, Index and Stocks Analysis
The concept of multiple time frame analysis in one visualization is a core component of the Trading Safely philosophy and a key part of that is what we call the Range Relativity study. This looks at limits of range and the relationships between them across weekly (timing point), monthly, quarterly, semi annual and annual data. There are numerous patterns we look for including extremes, but also when a change of trend is beginning. This could be a major change in the dominant trend or a cyclical counter trend move. Both can be traded but the latter portends to seeing when the counter trend move is occurring and thereby giving us a proactive reference to place the sector, ETF or stock on our watch list and subsequently alert us to when the dominant trend is restarting.
IYT (I Shares Transportation Average) ETF is one which is beginning to interest us. The chart below has the Range Relativity Study applied. Black lines represent weekly range, blue monthly, pink quarterly, brown semi annual and red annual. These values are fixed at the beginning of each relevant period and therefore provide a forward set of reference points. In order for trends to accelerate it is necessary for price to overcome the first three time frames. This occurred back in November when a clear breakout occurred. Since then, until the past week, price has never come close to approaching the lower blue line or what we call monthly support. The weeks opening has also given us the weekly support point and you can see that it lies just below the monthly point. This acts as a zone of support and closing breach below both lines at the the end of this week and month would mean that the trend has switched to down.
The second chart is of the Dow transportation index itself and the picture is almost identical.
Whenever we trade ETF’s we also look at the major components within it, to get a better idea of whether the trade is worthwhile. FDX has the largest weighting. The first chart shows that price has been going sideways, but failed perfectly at the quarterly resistance at the end of February.
The measurement of true supports and resistance via Peak Energy and Expansion is another cornerstone of our analysis. The levels represents weekly and monthly time frames with the absolute levels being reference points as well as when shift from one side of price to the other. Looking at FDX there was a BullWhip buy signal last year, but in the more recent past the two red lines that were below price have jumped to the top and created a zone of resistance. There had also held the same value for some time which makes the moves to the highs more significant.
NSC is the next highest and this already showing signs of breaking down. It currently already sits just below the monthly and quarterly support which is the first time in nearly a year. Note that the high was at its annual target point this year (red line).
Energy and Expansion show that a major line has moved to the top of the trend.
Other stocks in the sector show very similar set-ups with major support close. However, UPS has been the poor relation. It collapsed earlier this year, but the power of Range Relativity was evident as it went straight to the major semi annual support which coincided with the monthly level and stabilized. Price has edged higher but now is approaching the formidable hurdle of a zone of resistance that represents the monthly and quarterly time frame.
Please note this is general advice from Trading Safely for all our clients and has been prepared without taking into account your personal objectives, financial situation or needs. If you do wish to consider acting on our information please contact a licensed financial advisor to discuss the appropriateness of this recommendation for your own personal financial circumstances. Please obtain any relevant product disclosure documents before deciding to invest. Trading derivatives, stocks and CFDs can lead to losses greater than your deposit.