Oct 24

Bearish on Transports

by Mike Paulenoff, Tue October 24th, 2006

The IYT, in particular, and the Dow Transport index, in general, continue to badly lag the action in the Industrials during the July-Oct. rally. Couple the glaring non-confirmation with the inability of the Transports to get maximum traction from the oil price plummet... and then throw in yesterday's unconfirmed new recovery high followed by a downside reversal spike, and there seems to me to be compelling reasons to be positioned short the IYT here.

And just imagine if the Fed remains hawkish? Or if oil prices start to climb again?

Looking at the daily chart of the iShares DJ Transportation Avg Index (IYT), my near and intermediate-term work argues strongly that one or more of the uplegs off of the August low (1,2,3 on the chart) ended at yesterday's high of 85.51, which if accurate means that the ETF has embarked on a decline that at the very least should press into the 82 area, and possibly into the 80-79.50 support area from here.

The key components of the IYT are the FDX (11.4%), UNP (9.1%), UPS (7.3%), BNI (7.6%), OSG (5.9%) and R (5.3%).

Chart

Mike Paulenoff is author of www.MPTrader.com, a real-time diary of his technical analysis & trade alerts on ETFs for precious metals, energy, currencies, and an array of equity indices and sectors, including international markets, plus key ETF component stocks in sectors like technology, mining, and banking. Sign up for a Free 15-day Trial!