Transports are breaking out. This delivery giant in the space deserves close attention, charts show
The iShares IYT Transportation Average ETF(IYT) doesn’t get much attention, but that may change soon. This morning, it’s breaking out of amultimonth bullish pattern. That’s notable because — according toDow Theory — we want the transportation average toconfirm any major move or breakoutin the Dow Jones Industrial Average. The logic is straightforward: If companies thatmakethe goods are thriving, the companies thattransportthose goods should be busy as well. Strong activity in transportation is a classic sign of a healthy economy, which in turn supports continued strength in industrial companies. Of course, the structure of the economy has evolved dramatically over the past century since this market principle first became popular. But the underlying idea remains useful: The more areas of the market participating in a move to the upside, the morehealthy and sustainablethat move tends to be. We’re going to look at a few charts today, but the big takeaway is thatpersistent breakouts from patterns across multiple timeframesare unusual — and when they appear, they deserve our attention. The first one is thedaily chart, where IYT has been knocking on the door of a breakout above the73-levelever since it first revisited that area in July. Despite several failed attempts, IYT continued tohold close to the highs. That persistence has been a constructive sign. Then came thebroad market snapbackin late November, which helped fueltoday’s breakoutthrough that zone, as indicated on the chart. This breakout nowtriggers a measured-move targetup into the80-zone, which would be meaningfully above its 2025 high and even above theall-time high from 2024, shown on the next chart. Thisweekly chartstretches all the way back to late 2022. When look at the entire decline from late 2024 through the April crash lows and then the recovery over the past several months, the entire structure can be categorized as amassive bullish inverse head-and-shoulders pattern. While the theoretical measured-move target from a pattern of this size would bemuchhigher, this isn’t about making outlandish projections. The key point is thatadditional follow-through from here wouldn’t just confirm the larger pattern breakout — it could also put IYT into new all-time-high territory, which at this point isn’t far away. The real question then becomes:If and when that happens, how much more upside can we reasonably expect? We can start to answer that by looking at this 20-year,monthly chart.We can categorize this entire period as a series offour major bullish patterns. The previous three all resolved decisively to the upside, each followed bymonths — often years — of additional upside follow-through. Those breakouts occurred in2012,2017 and2020 and, in every case, the eventual consolidation only served to createanother bullish structure. The latest iteration has taken shape sincemid-2021, meaning we’re essentially looking at afour-year bullish formationthat IYT may now be breaking out of. Given both thelengthandheightof this pattern, one could reasonably argue that not only is a new all-time high achievable, but that IYT could extendmuch further and for much longerif the long-term behavior of the past two decades repeats. Looking more specifically at IYTs49 holdings, we see thatground transportationandair freight & logisticsgroups making up roughly80%of the ETF. While many of the underlying names are already at — or approaching — new all-time highs, there is one highly recognizable laggard that deserves our attention going forward: UPS . UPS is thethird-largest holding in IYT, with a weight of nearly8%. And although it’s rallying today, the bigger picture is hard to ignore: UPS has been in awaterfall declineever since topping in early 2022. It has nowfully retraced the entire rally off the COVID lows. This is aweekly chartalong with its40-week moving average, which closely aligns with the 200-day moving average. Despite multiple attempts to reclaim that line,every effort has failed, and this has become even more evident throughout 2024. Of course, each failed bounce carried thepotentialto evolve into a bullish pattern — but that has not yet materialized. If, however, at some point soon UPS can, in fact,break out of a bullish formationandregain and hold above the 40-week line, then IYT would gain another major component contributing to its upside momentum. This is whyUPS should be watched closely in the weeks to months ahead. DISCLOSURES: None. 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