Transports Trade Set-up

We already have placed in several short orders in IYT/Dj-20 Transports as a long term trend trade.

The current position which is 2 separate areas in a purposefully phased in entry leaves our current position at a pretty decent average entry...

The average entry is $151.50 (IYT Short) which is a pretty decent entry all things considered in a choppy top.

First I'll recap the big picture and then we'll move on to specific additional or new entry area.

 This daily chart of DJ-20 (Transports) or IYT, shows a VERY clear trend from 2013, very stable and predictable. At the orange arrow there's a clear change in character and in the market, changes in character almost always lead to changes in trends, this being a primary trend (large, long term), it looks like this is a stage 3 top with the preceding trend stage 2 mark up.

 I often note that we see an acceleration in the rate of change (ROC) of price just before a stage change, in this case late stage mark-up (stage 2) usually has an increased rate of change to the upside that is "seemingly" bullish, however this is almost always a red flag that a change in direction is coming (sorry, the indicator I constructed to shows the lift away from the trend line wasn't long enough).

If you can see the trendlines , then you can see not only has the 2013 uptrend been broken, but the lateral range of 2014 has seen support broken, these are the initial breaks of support in top patterns that retail technical traders are taught to short which I ALWAYS stay away from as Wall St. knows exactly what retail will do and they use it against them every time just like we see in this shakeout as new shorts on the break below support will almost always put their stops right at former support  or just above, so the volatility shakeout that moves above the range stops out the new shorts. Incidentally, this is the last place I'll short a price pattern like this or a H&S which has broken it's neckline and rallied back above it, after that, you are essentially chasing prices lower and don't have the same excellent entry and lower risk profile.

 This 3 day long term 3C chart shows the trend of 3C distribution without the noise, this is the main take-away, no matter how strong transports have been, they are under massive distribution and a significant change in trend is coming on a long term primary trend basis as the distribution is significantly higher than the 2009 accumulation.

The 4 hour chart "was" in line confirming the upside trend at stage 2, you can see it starts to lead negative just as price breaks away on an increased upside ROC and since, it has just gotten worse.

Really I don't think we need to go much further in showing what the long term underlying flow is in transports and how it has changed, but I'll show a few more.

 Again, this 60 min chart confirms the uptrend as 3C makes higher highs with price until the change in the trend/trendline. The red trendline above is our average entry at $151.50, so as you can see, we've averaged out right near the very top , in fact only 3.5% from the very top.

 Now specifically for the next entry, the October run was accumulated just like everything else and is showing strong distribution, this is the rough area we want to get short transports/IYT.

 From here I look at the timing timeframes like the 1 min chart and migration to longer charts like 2 , 3 and 5 min.

You can see intraday the highs have been distributed twice. I'm looking for this chart to go more negative and migrate to the 2, 3 and 5 min charts as the 10 min is negative.

 You may recall the post on Friday looking back to what we were seeing and saying on October 13, 14 and 15, you can also see that's about as bottom as you get. There's signs of leading negative 3C signals here, distribution so there's migration here as well.

As mentioned the 10 min is already negative.

I can't say there will be higher prices in IYT,it could just float in this general area as many times distribution occurs in to a range, but even if not for higher prices, I'd like to wait another day or so until the 5 min chart is clearly negative just from a risk and opportunity cost perspective (timing),  although if you are looking at this as a longer term 6-12 month short, I think when you look back you'll see you can't get much closer to the top than what we have done and therefore this area makes just as much sense as any.

This is another one of my favorites that I think will see very large gains, ultimately below the 2009 lows.