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Tickers in this Article: IYT, NSC, TK, AIRM
Oil prices broke through the $100 barrier a few weeks ago after trending sideways for several months. While the catalyst has been widely attributed to the unrest in the Middle East, the US Dollar Index's fall to new multiyear lows is surely playing a part. In either case, it appears that the breakout in oil may be sustainable, which should scare the average consumer. With oil threatening to move higher, simple logic implies that there will be a negative impact in the transports sector. Interestingly enough, transports have actually been holding up quite well in the face of not only spiking oil prices, but also market weakness through the recent correction. Tutorial: Investing Concepts

The iShares Dow Jones Transportation Average (NYSE:IYT) is an ETF that can be used as a proxy for the general sector. While it did pull back with the markets in late February, notice that it has held support near $90 while oil prices have broken out. Volatility has certainly increased along with volume, implying some indecision among market participants, but the fact that it has held up is a positive. IYT is actually testing a key level near $94 right now, which should be watched by traders. If IYT can clear this level, it will be positive not only for the group, but also for the markets as a whole. However, IYT could fail here and $90 will be the level to watch if that happens. If IYT breaks back down under that level it could imply a top for the average and a correction moving forward. (For more, see Shake, Rattle And Roll: 3 Transport Stocks On The Move.)


Source: StockCharts.com


Rails have been in a great trend for several months, and one worth watching here is Norfolk Southern Corporation (NYSE:NSC). It is just emerging from a wide base and has cleared an important level near $66. While it's likely not worth chasing higher, the $66 level should act as good support on any weakness. If the transports can stabilize and move higher, then NSC would likely follow through on the breakout. (For more, see Rails Show Strength.)


Source: StockCharts.com


Several shippers have also had a nice run over the past few months. Teekay Corporation (NYSE:TK) is one such shipper that has been consolidating following a nice breakout in October of last year. It broke out of an ascending triangle in January, but failed miserably, dropping all the way back to the bottom of the prior base. However, it quickly stabilized and has been trading in a tight range between $34 and $36. $36 is be the key area to watch as TK has failed both attempts at clearing this level; a move above could lead to a nice breakout.


Source: StockCharts.com


Air Methods Corporation (Nasdaq:AIRM) is more of a niche transport company, as it provides air medical emergency transport services in the United States. Maybe it can pass along rising energy costs to consumers, because it is not reacting at all to rising oil prices. AIRM recently cleared a good-looking base on strong volume. It is now building a flag near $65. Traders should be on the watch for a continuation move higher; if AIRM pulls back on market weakness, the level to watch for support will be near the breakout area of $60. (For more, see 5 Strong Stocks Poised For A Breakout.)


Source: StockCharts.com


The Bottom Line
The recent strength the transports have shown seems counterintuitive to rising oil prices, but the charts don't lie. The transports are a very important group to watch and if IYT can clear its March highs, this could give the markets a boost. The other variable to watch is if oil prices actually drop from these levels. That could also provide the transports with a boost. The transports are not out of the woods yet though, so traders need to watch the situation closely. The key is that whatever happens with the group will have a large impact on the rest of the markets.

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

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