Transports Trade Set Up

This is already one of our core (trend) short positions with at least 2 previous entry areas since identifying the 2014 change in character which leads to changes in trends.

Transports have shown abysmal performance as of late and on the year to date, which makes it very difficult to justify a new entry for those who may be interested as we want to short in to price strength and underlying chart weakness, but if we never get the price strength we are essentially chasing the trade and that doesn't bode well for a trend position in a market that is as large laterally and as choppy as this one is (indicative of the topping process).

 The major averages YTD with transports in salmon lagging significantly.

The averages over the last week, again with Transports lagging significantly.

The averages intraday today so far with Transports leading as everything else looks pinned in place for options expiration.

 This trend is a great example of a stage 2 trend in mark-up before the mania phase as it peels away from a long term trend/average as it did on a Crazy Ivan shakeout (below the trendily which gives it a lot of momentum for a move above the trendily and that's where price peeled away ringing warning bells). 

This is a nice example of why we try to fit a trend inside our custom indicator, the Trend Channel as soon as possible. Although we have a lot of different tools (as well as your favorites) at our disposal and sometimes they'll give better entries and exits, with the Trend Channel there's no guessing, there's no arbitrary decisions. The stop is based on objective evidence so you aren't wondering whether it's time to take profits at each new swing higher (or lower).

This was one of my fist custom indicators and the first one I won an award for. Originally I was trying to do something automated along the lines of the Turtle trading system, but after years of back testing every known system I've been able to program in to my backscanner and hundreds of my own creations, I've realized that there are few systems that are robust enough to work through multiple market environments and the only ones that are have draw down periods that are so significant I doubt anyone has the emotional fortitude to stick with the system  as well as to stick to the rules which only allow a couple of trades a year- most traders feel they have to be much more active than that, but the system worked, although it doesn't matter if people can't abide by it.

The Trend Channel is not like Bollinger Bands or Envelope Channels, it self adjusts to each assets own volatility and creates a channel that is a certain standard deviation outside of what would be normal. The Trend Channel can and will adjust to natural changes in a trend , it will allow for pullbacks/consolidations, etc. However when it does give a sell or cover signal, I have found you are best off taking it and any further gains (as the Trend Channel by function will never take you out at the top or bottom) are usually dumb luck while you are typically best served moving you money to the next idea. 

As you can see, the Trend Channel held the entire trend in Transports for 2 years without 1 single day's false stop-out signal. The stop out came at the red arrow on a closing basis and since, it has travelled in a lateral choppy range, in other words it captured the trend and exited before it turned to a lateral chop-fest.

Remember these changes of character lead to changes in trends, and that is clearly the case with transports as they have been lateral ever since with a slight drift to the downside.

 Here's a closer look at the daily chart

 The long term and strong daily 3C chart of Transports had been in confirmation of the stage 2 uptrend and if you look close 3C goes negative right before the Trend Channel Stop-out. Since it has seen a deepening/worsening distribution trend that was relative negative and now leading negative which is the stronger of the 2 underlying trends.

This is not a stock that I want to trade long for more than exceptionally short period and it would have to have unbelievably strong long/positive signals as the highest probabilities are represented by the 3C chart above (Down).

 The 2 hour 3C chart is largely in line with the trend, although I did take the liberty of marking some of the smaller divergences that led to swings up and down, however as I said, the main trend has been downside confirmation.

 Very recently and VERY quickly there was a burst of accumulation, it is no where near a stable base or anything I'd personally consider as a long as it is too unstable and unpredictable, but nevertheless, we have a 15 min leading positive divergence which I confirmed in essentially a single day (just a tad longer).

 So far the trend has been able to maintain close to an inline status although there are signs of some profit taking.

This move would not have been possible without a head fake move/stop run which I'll show below.

This is the 1 min intraday chart, again for the most part it is in line on its first day of upside, but while a 15 min divergence is impressive, especially one that develops in little more than a day, it's still only a day's worth of "Gas in the tank".

Under no circumstances do I consider this any kind of bullish trend change. If anything, Transports are likely getting this boost so smart money/intitutional money or 

From left to right join a daily chart, there was a support area from early 2015, stops and new shorts would be lined up to execute on a break of that trendily as happened at the first yellow arrow/head fake move around the middle of the chart. Note the increase in volume as stops are hit and new shorts enter on break of the trendily confirmation. However by days's end the supply created by stops and short sellers had been accumulated and pushed back above resistance creating a squeeze which ended with a "Shooting-Star-like" candle in red on increased volume. Volume doesn't need to be huge, it just needs to increase and these candlestick patterns (bullish or bearish are about 3x more effective than without the higher volume).

A new support trendline was created and that was followed by a Shooting Star on increasing volume sending price back down. Yesterday on the 15 min leading divergence above, price ran stops / new shorts with a head fake move (yellow arrow to the far right) below the trend line with a significant increase in volume (indicative of stops being hit and/or new shorts moving in on trend line break confirmation). As with most head fake moves, this creates momentum as new shorts are squeezed, sometimes new longs will come in if the move is strong enough to attract their attention.

I'd like to see a move to the $160+ area, but we'll listen to the market and watch the charts for signs of where/when this move loses its gas, AT THAT POINT, WE SHOULD HAVE OUR NEXT AND PERHAPS LAST TRANSPORTS TREND POSITION SHORT ENTRY.