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Trains, planes and trucks

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It's been a rather sideway trading session since the opening bell and there hasn't been a lot of action. That gave me time to look at some transportation related stocks as the Dow Transportation Average (TRAN) has gotten a bounce off its rounding 200-day moving average and perhaps has the "economic bull's" scenario for a recovering economy getting some upside confirmation from the transports.

Dow Transportation Average - Daily Interval

Yesterday's and today's action in the transports as characterized by the Dow Jones Transportation Average (TRAN) looks bullish and may help confirm the MARKET's perception that an economic recovery is alive and well. Last summer, the TRAN acted very similar at downward trend with a brief break above trend that was put in place from the May 1999 highs near $3,800.

This past summer the break back below the 200-day MA spelled "doom" for the group and the recent test of the rounding 200-day MA and bounce higher is encouraging for economic bulls. It's a long-held belief that the transports do well in front of an economic recovery and we're seeing some DIVERGENCE from the past that is bullish here.

One stock that "inside day" traders may want to keep an eye on tomorrow are shares of Railamerica (NYSE:RRA) $13.23 +1.3%. In recent weeks, this stock has traded lower.

Railamerica Chart -

I think the lower trading action is based on the company moving its listing from the NASDAQ to the NYSE and market makers have been selling their inventory as they will no longer make a market in the stock as the NYSE specialist will now take over. This may give traders an opportunity to buy what looks to have been a strong stock in the transports at a bit of a discount due to the recent listing move. Today's trading is in a rather tight range and sets up a potential "inside day" for traders. If the market maker selling is abating, then would expect a move tomorrow above today's high an that would be an action point for entry. Unfortunately, shares of RRA are not optionable at this time.

Jeff Bailey
Senior Market Technician
Option Investor

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