I don't usually hold too many positions at one time, the market is so correlated with the broad market accounting for about 2/3rds of any given stock's movement. There are not as many non-correlated assets as you might think, there are a lot of assets with large discrepancies in relative performance, but for risk management and diversification, it's surprising how small the equity universe is, although there are other multi-layered/timing strategies that seem to work just as good if not better.
In any case, Transports are one area I do like for some diversification as well as being a main component in Dow Theory which I think has obviously mutated over the century as the US has transitioned from Industrial to services, but transports are still important even as a part of Dow Theory if you replace Industrials with transport, think FED-Ex.
We entered a partial position in IYT short (about half size core equity short), expecting it to make some further gains in which we could add to. Even now the IYT short is in the green for our last entry and has acted well on the downswing.
In last night's Daily Wrap I said I'd consider picking up IYT/TTransports (short) on virtually any upside gain. I think it will be a bit tough to get that upside gain, but not impossible, in fact I think the opportunity is likely, but may be very brief so if you are interested you may want to set several price alerts above the current level at areas you think may be appropriate, such as above Wednesday's intraday high.
Here are the charts for Transports (DJ-20 and IYT), they have good overall confirmation.
This daily chart of Transports shows something I mention often under the heading of, "Change in character". The peeling away and increased upside ROC of price from a long term trend is seemingly bullish, but more times than not, this is a red flag telling us a major transition point is nearby. In fact between every stage in a stocks's cycle, there's a character/ROC price change leading to the next stage. A move from a stage 1 base to stage 2 mark-up almost always sees a sharp head fake move to the downside taking out stops before moving up in to the trending stage which is something we saw exaggerated this week on GDX/NUGT's close on 8/25 before stage 2 started 8/26. Then there's this upside peeling away from the long term trend as stage 2 ends and moves to a stage 3 top (lateral) as we are seeing now. Stage 3 transitions to stage 4 after a typically predictable rounding top starts to get close to rolling over and runs a false breakout head fake leading to stage 4 decline and stage 4 decline almost always ends with an increased downside ROC on heavy volume that we call capitulation.
"To make money you have to see what the crowd missed".
The last time we entered transports (still an open/green short), the daily chart had not gone negative, you may recall it was a very fast forming large 60 min negative divegrence. Now the daily chart is leading negative at a double top-like formation.
The 4 hour chart was in line with the trend and goes leading negative as price peels away to the upside.
This is the 60 min chart that caused out last short entry in IYT at the negative divergence , now that divergence is worse, leading to a new low.
Once again, almost every average, group and asset saw a base at the same time in early August, transports too. I can't be sure as this is a lot of damage on a 30 min chart, but the most recent action points to a possible upside final move or head fake which would be an ideal entry.
The 15 min chart shows the same thing.
Where I'm a little stumped is the 10 min chart, although it agrees with the distribution, it's not showing anything that might support a bounce.
The 3 min chart's trend has been very accurate in confirming the move up and then showing distribution as that move starts turning sideways, or as they say, "
The trend is your friend until the end when it starts to bend".
And the 2 min chart is leading negative as far as the trend goes as well.
The 1 min chart's trend is similar, but also suggests 1 more upside move being prepared for, which would be the move I'd want to short in to, of course always double checking it for distribution on any upside to be sure, but as all of these charts lune up negative, probabilities are very high any upside move would be useful for shorting in to and would not hold as Transports are in big trouble here.
If you are interested in an IYT short, again, I'd set those price alerts. I intend on filling out the partial position entered in July. The upside risk is pretty negligible at this point as a stop can be placed above the local all time highs give or take a few additional percent to leave room for any potential head fake move as to be an effective move, they have to get retail to buy in to the move which usually means taking out some significant and easily recognizable resistance.
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