While 2019 proved to be a strong year for most segments of the financial markets, the transportation sector was one of the rare exceptions that seemed to trend sideways instead of upward. As the New Year approaches, active traders and long-term investors alike are taking the opportunity to look over their portfolios and make necessary adjustments to ensure that they can be in a position to be rewarded in 2020. Based on the chart patterns discussed below, recent buy signals suggest that the final days of 2019 are lining up to be an interesting time to increase exposure to transportation stocks.
iShares Transportation Average ETF (IYT)
The sideways momentum that has plagued the transportation sector in 2019 is clearly evident on the chart of the iShares Transportation Average ETF (IYT) shown below. The horizontal trendlines have created what is known as a channel pattern, which is commonly looked at as a period of consolidation before a major long-term trend gets established. This type of consolidation pattern is a favorite of range-bound traders because the levels of support and resistance clearly establish levels for placing buy and stop orders.
For those who are looking for ideas heading into 2020, you may want to take note of the recent cross between the 50-day and 200-day moving average shown by the blue circle. This common buy sign is known as a golden crossover and is often used by followers of technical analysis to mark the beginning of a major uptrend. Traders will also likely want to note that the moving average convergence divergence (MACD) indicator has recently crossed above its signal line, which will likely be used as confirmation that the first few weeks of 2020 will be bullish for the transports. Should the price move beyond the resistance near the psychological $200 level, it would likely lead to target prices near $225, which is equal to the entry point plus the height of the pattern.
Norfolk Southern Corporation (NSC)
The top holding of the IYT ETF that could be worth a closer look is Norfolk Southern Corporation (NSC). As you can see from the chart, a short-term ascending triangle pattern has formed on the chart near the 200-day moving average. The triangle pattern combined with the recent crossover between the 50-day and 200-day moving averages suggest that traders will be watching for a close above the upper trendline in early 2020. In addition, as discussed above, traders will also likely look at the bullish crossover between the MACD and its signal line as a sign of a move higher. Short-term target prices will most likely be set near $215, which is equal to the entry point pus the height of the pattern. From a risk management perspective, stop-loss orders will most likely be set near $187.75 in case of a sudden shift in fundamentals.
Union Pacific Corporation (UNP)
Another interesting chart pattern that has formed within the railroads industry that could be worth a closer look is found on chart of Union Pacific Corporation (UNP). As you can see below, the $180 mark has prevented a move higher for most of 2019, but the stock looks well positioned to surpass this level of resistance in 2020. As noted on the charts above, the golden crossover between the long-term moving averages will likely be used as a reason to anticipate a break higher in coming weeks.
The Bottom Line
The transportation sector has trended sideways for most of 2019, but the story looks to be changing for those looking to the year ahead. Recent long-term buy signals could be enough of a reason to anticipate a breakout beyond key resistance levels in early 2020 that could point to higher prices for months to come.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.