The recent spike in market volatility has many investors sharpening their focus and leading them to sectors of the markets that are trading near key levels of support, which currently seem to be segments such as transportation, utilities, and building and construction. For followers of technical analysis, sudden sell-offs can offer opportunities to enter positions with risk/reward setups that are often only possible several times per year. In this article, we'll take a look at several charts from across the transportation sector, which looks like one of the strongest candidates for major moves higher over the remainder of 2019.
SPDR S&P Transportation ETF (XTN)
Recent market weakness has sent the price of major transportation companies toward major long-term levels of support. As you can see on the chart of the SPDR S&P Transportation ETF (XTN), the price is trading near the combined support of its 200-day moving average and an ascending triangle pattern. This long-term setup suggests that the bulls are in control of the primary trend and that weakness could be presenting one of the best buying opportunities of the year. Followers of technical analysis will likely watch for a bounce from current levels and then for the price to test resistance near $64. Should the price close above the breakout point at some point by the end of the year, then the 12-month target will likely be moved to $78, which is equal to the entry point plus the height of the pattern.
XPO Logistics, Inc. (XPO)
The top holding of the XTN ETF is XPO Logistics, Inc. (XPO), which could capture the attention of active traders over the days to come. As you can see from the chart below, the price of the stock has been trading under the long-term resistance of the 200-day moving average for the majority of the past 12 months. However, the recent break beyond the descending trendline and the 200-day moving average is a bullish signal, which suggests that the downtrend is in the process of reversing. In fact, recent weakness is giving traders an opportunity to place orders with a lucrative risk/reward and clearly shows where stop-loss orders will be placed in case the market continues to weaken.
United Parcel Services, Inc. (UPS)
When it comes to the transportation sector, there are few names more recognizable than United Parcel Services, Inc. (UPS). The strong price action as of late thanks to positive quarterly earnings pushed the price of the stock above the resistance of its 200-day moving average. The decisive change in momentum over the past couple of months shows that the bulls are increasing their conviction and will most likely be looking for opportunities to increase their positions as the price nears $110. Followers of technical analysis will also be keeping a close eye on the 50-day moving average because it looks like it is several days away from crossing above the 200-day moving average. This type of bullish crossover is a common long-term buy signal and is often used to mark the beginning of a long-term uptrend. It could be the catalyst needed to send the price back toward the 2018 highs.
The Bottom Line
Weakness in the general markets could be providing strategic traders with an interesting opportunity to buy into targeted sectors like transportation, utilities, or building and construction. Based on the charts discussed above, specific focus should be given to transportation stocks because nearby support levels and lucrative risk/reward setups suggest that this segment could be poised for a major move higher.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.