The transportation sector has roared to new highs this week, underpinned by an unusually strong late-year rotation out of big tech and other 2017 winners into cyclical issues that should benefit from D.C. tax cut legislation. The Dow Jones Transportation Average has mounted the psychological 10,000 level in the latest buying wave and could use that magic number as a platform for even stronger 2018 upside.

Packaging giants FedEx Corporation (FDX) and United Parcel Service, Inc. (UPS) have posted all-time highs in this rally burst, signaling great news for the U.S. economy because these issues act as canaries in the coalmine, foretelling strength or weakness across the broader commercial and industrial landscape. Their rapid ascent to market leadership predicts that tax cuts will have the desired effect in their early implementation, adding strength to already resilient GDP numbers. (See also: How to Analyze the Transportation Industry.)

FedEx shares topped out at $121.42 in 2007 following a multi-year uptrend and sold off to $34.02 during the economic collapse. The subsequent recovery unfolded in two waves that took more than four years to complete a round trip into the prior decade's resistance. The stock broke out in the second half of 2013 and ripped higher, topping out at $183.51 in December 2014 and dropping into an intermediate correction that ended on top of new support in January 2016.

It returned to the prior high after the presidential election and broke out, but rally momentum failed to develop, generating dull narrow range action that persisted into June 2017. It turned sharply higher through the summer months, carving a rising channel that added points at a healthy pace into October. A November slide ended at channel support last week, giving way to a vertical advance that broke channel resistance on Monday.

This dynamic strength has generated support between $230 and $232, with a pullback into that price zone offering a potential buying opportunity. A stop-loss just under that level makes perfect sense in this scenario because 26 points of straight up action in the past week raise the odds for a bearish pattern failure. Even so, on-balance volume (OBV) has rocketed to a new high along with price, adding a tailwind that could support a trip toward $300 in the first half of 2018. (For more, see: Buy FedEx—It Will Not Be 'Amazoned': Cowen.)

United Parcel Service stock ended a long uptrend at $89.11 in December 2004 and entered a persistent decline that finally ended at an all-time low in the mid-$30s in March 2009. It completed a round trip into the prior high in 2012 and broke out, carving a choppy uptrend that stalled at $114.40 in January 2015. The stock pulled back into the low $90s and bounced along that level for eight months, finally breaking down and hitting a two-year low at $87.30 in January 2016.

A strong bounce stalled within three points of the 2015 high in July 2016, giving way to a pullback into November, followed by a breakout that ended at $120 just one month later. The stock spent the first three quarters of 2017 testing those gains, finally returning to the 2016 high in October. It sold off into late November and turned higher at the 200-day exponential moving average (EMA), going vertical into this week's breakout.

This price action completes a year-long cup and handle pattern, but the handle looks incomplete despite the rally wave, predicting mixed action that could drop the stock as low as $115 to $117. Keep that in mind when deciding on sector exposure because buying a short-term top can be detrimental to your trading or investment performance. However, the bullish long-term outlook suggests much higher prices in 2018. (See also: UPS Beats Earnings, Revenue Estimates in Q3.)

The Bottom Line

FedEx and UPS have broken out to all-time highs in a newly resilient transportation sector, underpinned by expectations for stronger 2018 economic growth. FedEx looks like a better bet than UPS at the moment, with new support just a few points below the most recent close. (For additional reading, check out: FedEx, UPS Can Beat Amazon Delivery Entry: Goldman.)

<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>