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Tickers in this Article: CSX, NSC, ODFL, CNW
As expected, the markets finally succumbed to some selling pressure over the past few days. While there are a few high profile catalysts being bandied about on television, the bottom line is that the markets were very vulnerable after the furious run over the past couple of weeks. Not to minimize continued unemployment problems and debt issues in Europe, but there was very little that could have pushed the markets even higher without a breather. As always, no one knows if the markets will continue lower or simply find support and head higher. So as traders, our job is to uncover where the money is going and plan accordingly. (For a perspective on the European debt crisis, see Disbanding The Euro - A Worst-Case Scenario.)

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One group that continues to act well and is potentially flashing an important signal for the markets is the transports sector. While the general market indexes mostly stopped short of hitting new highs, the Dow Jones Transport Average actually traded to new highs last week. In fact, it hit a new all time high, although by just a marginal amount. While the average reversed from this high along with the markets, it's potentially a good sign that the market will follow suit.

One of the stocks in this sector that also hit new highs is CSX Corporation (NYSE:CSX). CSX recently broke out of the channel it was following as it consolidated its rally from earlier this year. While it has experienced some stiff selling pressure over the past few days, it did set a higher high and could find some buyers waiting at current levels. Traders should monitor whether the 20 and 50-day moving averages can act as a support level and keep the breakout intact. (For related reading, see The Long Straddle And Price Consolidation.)




Another Transport that surged to new highs is Con-Way, Inc. (NYSE:CNW). CNW appeared to be in some trouble in June as it dipped under a support level near $37, but it quickly recovered, setting a bear trap. CNW catapulted above and beyond its base as it reached above the $42 level. After a near vertical rise, it isn't a surprise that it is seeing some profit taking. However, CNW remains above its prior base and could find support near $40.




Norfolk Southern Corporation Co (NYSE:NSC) is also experiencing some profit taking after a surge to new highs. While the drop has been a little steep, volume has been tame on the pullback. This suggests that the pullback is not distribution, although traders will want to keep a close eye on support near $73 to see how buyers act as it pulls back. If buyers keep NSC above its prior base as it consolidates, it would set the stage for a continuation move higher.


Old Dominion Freight Line, Inc. (Nasdaq:ODFL) is also back to its prior base after a breakout. Much like the rest of these charts, the recent rally has been near vertical and was unsustainable after clearing resistance. ODFL is back to the breakout area near $38 and could pullback towards its 20 and 50-day moving averages in the coming days. (For more, see Backspreads: Good News For Breakout Traders.)


Bottom Line
Many of these stocks are pulling back along with the markets this week, but the fact that they all hit new recovery highs ahead of the markets should not be taken lightly. The transports are a key sector to watch in a late bear or early bull market, and their strength is a positive sign. Traders should pay close attention to their behavior over the coming days to see if they can stabilize near their recent breakout areas. If they do, especially as the markets become oversold, it could present a great trading opportunity on the long side.

Charts courtesy of stockcharts.com

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article

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