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Long Term Below is a long term monthly chart of the transports with Elliott Wave interpretation. The most important Elliott Wave count is the long term one, indicated by the large blue letters. When the 1970 low was not violated in 1974, it tipped off the potential for a long-term 3rd wave up. From 1974 to 1997 the transports went from about 130 to almost 4,000. In 1997, the transports put in a temporary top thereby ending the 3rd wave up. The end of the 3rd wave up was confirmed by the peak in monthly momentum as indicated by the monthly RSI. From 1997 to spring of 2003, the transports entered a long and complicated corrective pattern, which took the transports back to about 2000 in the spring of 2003. We are now in blue wave 5. When wave 3 extends in magnitude (as it does with the transports), waves 1 and 5 tend toward equality in magnitude. If wave 5 were to end soon at about its current level, this tendency would be true. However, this is only a “tendency” and not a “rule.” The present divergence between price action and momentum as indicated by the 14 month RSI tends to confirm the blue wave count indicated in the chart. From a long-term perspective 2,000 is an important number for the transports. In addition to being an important technical level, this is a level where transports would pay an arguably reasonable dividend of about 2.5%.
Intermediate Term The 3-year weekly chart below indicates a key support/resistance trendline in the transports. The most recent rally in the transports did not produce decisive arally and there is also a momentum divergence (14 week RSI shown). For now the existing uptrends deserve the benefit of the doubt.
Short Term The 6-month daily candlestick chart shows that there is support at about 4100, where Wednesday’s action saw the transports rally on decisive volume thereby confirming this short term support. Based on market action over the last 4 years, a whipsaw of the 10 and 40 week moving averages appears to be in the making, while a failure of support will be telling in that it would indicate a change in the market’s “character” from bullish to bearish.
Key Transportation Stocks YRC Worldwide, Inc. (YRCW) - Bearish YRC Worldwide appears to be a transportation stock that looks particularly bearish. It is in an intermediate term downtrend and is in the process of completing a descending triangle. It is a position where bearish action would turn the 10-week moving average decisively below the 40 week moving average, while keeping the current (blue) bearish trendline intact. There is former resistance which is now support at the round number, 40. If YRCW breaks below 40, the measurement principle would suggest a price target of 26. (It is noted that the current market has generally produced whipsaws of apparent support, and the measurement principle has not worked from the bearish side.)
Similar to classic technical analysis, the Point-and-figure (PAF) depicts a similar bearish prognosis for YRCW. According to PAF, the bearish price objective for YRC is 20. If one were to short the stock, a logical point to place a stop loss would be a close above 50, the point at which a “buy” signal would be triggered. Therefore the risk potential risk is 3 points (50 minus 47), and the potential reward is 27 points (47 minus 20). The reward to risk ratio is 9 for a bearish position in YRCW.
JB Hunt Transport Services, Inc. (JBHT) – Bullish JB Hunt is showing bullish action – after advancing from mid single digits to over 22.5, the stock has formed an approximate 6 month “cup” consolidation. Then, over the last 8 weeks, JBHT has formed a “handle” by trading in a narrow trading range on relatively light volume. A decisive break above the fall high would likely produce substantial gains.
Continental Air Lines Inc. (CAL) - Bearish Continental has failed decisively at its October of 2003 high. Hope sprang eternal for speculators in the airlines, but it now appears to be back to long term reality. If (when) the general market turns down, the airlines are likely to lead the way.
Is it Time to Turn Out the Lights on the Bull Market? It’s better to trade with your head and not your heart. That is why after reading about the disappointing earnings from Yahoo, IBM, and Intel as well as the news stories about Japanese stock market corruption, I had visions of penning an article this week based on “The Party’s Over” theme. However, as suspected, the big bid saved the market for another day. I didn’t trade my fundamental convictions; only thought about them. Still, there is stock market wisdom in these song lyrics that I would like to share with you (early). Nelson,
Willie Turn
out the lights ------------------------------------------------------------------------------------------------------ The
party's over It's
time to wind up Today’s Market The transports lead the market higher as they were up a whopping 2.6% on relatively high volume. It appears that there is at least one more hurrah for the transports. Hold the Willie Nelson songs because they are not timely today! Once again, the market does not care that it would take an investor almost 3 years to make as much money on transport stock dividends as were gleaned via capital gains in today’s pre-option-expiration action. Notable transport ups included American Airlines (up 9.8%), Continental Air (up 8.8%), Burlington Santa Fe (up 5.5%), Norfolk Southern (up 5.3%), GATX (up 6.2%), Ryder (up 5.6%), and Union Pacific (up 6.4%). Featured stock, YRC Worldwide was up 2.3% (and I should mention that after a recent merger, YRCW is no longer part of the Dow transportation index). JB Hunt was up 1.8% on high volume. Gold and gold stocks had a bullish day as the metal was up about $15, the XAU was up 4.24, and the HUI was up 11.75. In terms of candlestick analysis, the apparent shooting star confirmed with an engulfing down day, was whipped after one day with a decisive up engulfing candle. This may be shedding light on the power of the gold bull market in that corrections appear to be low in magnitude and low in duration. I believe that except for the most agile traders trading partial positions, this is the type market where one must hold one’s position. Here is a previous article that describes the reasoning behind that philosophy.
Energy and energy stocks were up again and with gold, commodities, and oil all in long term uptrends, the strength of the stock market surprises me. Better to be surprised and on the winning side of trades than fighting the tape and on the losing side of trades. In spite of this, I do not want to lose touch with my bearish side and that is why I’m taking a small bearish position in the retail holders ETF (RTH).
If it closes decisively above the blue trendline, I’m out. Otherwise, the intermediate trend is down. OK, I’m back to Willie Nelson. Have a great evening! Martin Goldberg
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