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Watch those transports!

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With many of the major averages hovering around their 200-day moving averages and economic data hinting of a recovery and now and then, the Dow Transportation Average (TRAN) is still stuck in low hear, but starting to edge just above its 200-day MA. This may well be a sector where a technical break higher sends a message that the "heart" of the American economy is starting to show some signs of a recovery.

Dow Jones Transportation Average - Daily Interval

Transportation stocks as characterized by the Dow Jones Transportation Average (TRAN) are trying to hit second gear and break above their 200-day MA. An "economic bull" and even an equity bulls wants to see a move with some conviction from current levels. A simple "drift" higher in this index is going to have me somewhat suspect of today's broader market rally. A bold move higher will show some CONVICTION by the MARKET that the bear is sleepy and may be getting ready for hibernation.

I'm getting the feeling that the TRAN may well have to be the sector/index near-term that will show some added leadership that may help pull the S&P 500 through its 200-day MA. A move with some CONVICTION from the transports may be just what it takes to get the S&P 500 above its still falling 200-day MA.

S&P 500 Index Chart - Daily Interval

Of the many quoted indexes, the S&P 500 is still trading below its 200-day MA and perhaps market participants need to see a group like the transportation stocks make a bold move higher to convince some bears to give up their fight. Subscriber e-mail is about a torn as we've seen and very indicative of what we see in the SPX. Just recently, one subscriber thought we were nuts for being bullish as the Dow Industrials was going to crater as it fell back below its 200-day MA. Today the Dow Industrials is back above its 200-day MA. Now bears are turning to the S&P 500 and pointing out that it's below its 200-day. Should the transports make a bold move near-term above their 200-day, bears may have to turn to the New York Composite (NYA.X) and point out that it too is below its 200-day MA.

If there's one group I think that could be the "swing sector," it could well be the transports. A stock I've liked in that group near the $31 level has been trucking stock CNF Inc. (NYSE:CNF) and that stock currently trades $33 and has been hovering near this level for the past two weeks. Something has to give and I think it will in the next several sessions. Right now, I'm leaning toward the bull side of things, but remain cautious and willing to trade for profits when we get them.

Jeff Bailey
Senior Market Technician
Option Investor

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