Editor's note: Historically, the transportation sector has been a good indicator of things to come in the market. If stocks seem great but transportation stocks are lagging, it's a warning sign for the overall market. But if transportation stocks are hitting new highs, that means the future of the stock market is bright... That's why Ten Stock Trader editor Greg Diamond says it's critical for investors to be aware of the current state of the transportation sector in an effort to determine how to navigate the broad market moving forward. In today's Masters Series, originally from the April 29 Weekly Market Outlook issue, Greg explains why transportation stocks are performing well right now... and details how this uptrend indicates a broad market rally is underway...
This Forgotten Sector Is Signaling a Big Rally By Greg Diamond, editor, Ten Stock Trader Nvidia's (NVDA) long-awaited DGX H200 graphics-processing unit ("GPU") has finally arrived on the world stage. In fact, CEO Jensen Huang hand-delivered the revolutionary GPU to OpenAI – the AI company behind the ChatGPT tool – just a few weeks ago. This brand-new, lightning-fast chip represents a giant leap in AI technology... NVDA even dubbed its H200 model "the world's most powerful GPU for supercharging AI workloads." And to commemorate the occasion, Huang signed the supercomputer with the following message... "to advance AI, computing, and humanity." This is a prime example of how AI technology is shaping our economy and driving innovation... to, hopefully, improve lives. So it's clearly at the forefront of investors' minds, especially given the dramatic rise in semiconductor stocks over the past 19 months. (NVDA has shot up more than 600% in that period.) But fear has crept back into the market... The recent correction fueled a broad sell-off last month, and some folks believe that could signal an AI bubble. Ultimately, we don't know how semiconductors will perform for the remainder of 2024. But I view the latest correction, and any further weakness, as an opportunity to buy within a strong uptrend. Now, longtime Ten Stock Trader subscribers know that I analyze many different sectors to gain a full understanding of the market. Today, I want to focus on a sector I haven't covered in a while. Although it isn't as exciting as headline-grabbing AI advancements, it's an integral part of the overall stock market. And, right now, it's signaling an important rally that many investors don't see coming...
| Recommended Links: | |  A 'May Surprise' Is Headed Straight for U.S. Stocks The man who predicted the market crashes of 2020 and 2022 warns that you could soon be blindsided by the "May Surprise" headed straight for U.S. stocks. It has nothing to do with war, interest rates, bitcoin, or gold. But once you understand what's happening, and how to profit from what's coming, you could double your money several times in the weeks ahead. To see this top analyst's outline (and No. 1 recommendation), click here. | |
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I'm talking about the vital transportation sector... I know that planes, trains, and trucks aren't as sexy as robots that converse like humans. But without the transportation sector – particularly, the daily exchange of goods and services – the U.S. economy wouldn't survive. However, the Dow Jones Transportation Average (the "transports") hasn't performed as well as other market sectors, including semiconductors, over the past few years. That's primarily because investors have shifted assets into technology stocks at a rapid pace. But we can gather clues about what's to come in the transports by reviewing several technical charts. Here's a weekly price chart going back to 2021... Whether you're a bull or a bear, there's nothing particularly exciting about this chart. But it's still worth breaking down from a technical perspective... The transports followed most other stocks and sectors lower in 2022. And, broadly speaking, they bottomed out and then rallied in 2023. But as you can see, the transportation sector hasn't done much compared with semiconductors, or even the Nasdaq Composite Index, over a two-to-three-year period. But that has recently changed. Let's zoom into the daily transports chart to see what happened over the past two weeks... From the March high this year, I've marked a wave 5 move down into the black dashed line, which has been a recent support level. Simply put, this price action marked a bottom. (Also note that the relative strength index ("RSI") bottomed out and then rallied as well.) In this chart, you can see that the transportation sector has begun to rally... In fact, the Elliott Wave count (a classic technical pattern) has played out exactly as I predicted. More importantly, this uptrend lines up with a rally in the broader stock market. Given those setups, can we trade the transports? Unfortunately, there isn't much liquidity to trade in this sector. Investors can trade the iShares Transportation Average Fund (IYT), but there isn't really an options market. In the past, I've traded shipping giant FedEx (FDX) as a way to capitalize on favorable setups within the transportation sector. But FDX has been all over the place lately, as you can see in the chart below... Look at the big gaps up and the big gaps down (highlighted with the black boxes above), as well as reversals in both directions, since late last year. Also note that the wave 5 pattern I outlined in the transports appears to be unfolding in FDX as well... The trade setup in FDX would include a completed wave 5 move down – perhaps into the 61.8% Fibonacci retracement level near $256 (marked with the black dashed line) – with a low and a rally thereafter. Keep in mind that FDX releases earnings on June 25, so a low and a rally into that report may be a good trade to execute. Planes, trains, and trucks may not be as exciting as the AI innovations coming out of companies like NVDA, but they continue to fuel the U.S. economy. Given the technical setups in play, the transportation sector is signaling a critical rally in the stock market. And if we prepare now, we can profit from this uptrend before the rest of the market catches on. Best, Greg Diamond, CMT
Editor's note: Greg predicted the COVID-19 and 2022 crashes. Now, he's sounding the alarm about a massive shift that's about to hit the stock market – one that could wipe out your 2024 earnings if you're not prepared... That's why Greg went on camera last week to reveal how you can position yourself to profit from this upcoming market shake-up. Catch up on the full details here... | 
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