The bulls stretched their winning streak to six-straight weeks despite a sloppy finish last Friday. Volatility stayed slightly elevated amid the “Fed-speak” and mixed earnings, and the bears will be trying to hold near-term resistance this week.
The trading range that ensued following last Monday’s push past prior resistance is holding fresh support. This is typically a bullish sign, and Friday’s rebound makes the case for higher highs into the U.S. Thanksgiving holiday and possibly Christmas.
The transports are holding support, and a rally in the sector could also lead to higher stock prices in general. The Dow Jones Transportation Average (DJT) has been holding its 100-day moving average this month following tests of the 50-day moving average throughout October.
The mini trading range from last week is showing consolidation, and the 50-day moving average is curling higher. A close above 8,300-8,325 would be a clear signal that a test to 8,400-8,450 and the 200-day moving average is coming. A move below 8,100-8,000 would be damaging and a bearish sign.
If the transports can clear 8,300, I will be watching the action in UPS (UPS) as a possible way to go “long” the sector. Shares made a nice run past $107 heading into the company’s earnings announcement in October, but they pulled back after revenue came in slightly lower than expected.
UPS Preparing for a Holiday-Season Charge
UPS reported a profit of $1.39 per share on revenue of $14.24 billion. Analysts were looking for $1.37 a share on revenue of $14.43 billion. The good news is that the company reaffirmed its full-year guidance of $5.05-$5.30 per share and said it was confident it would hit the higher end of that range. The company expects to complete 10% more deliveries between the U.S. Thanksgiving and New Year’s Day than it did last year.
The chart for UPS shows that “golden crosses” formed in October, with the 50- and 100-day moving averages crossing above the 200-day moving average.
Assuming shares can clear $106 or $107 in the near term, the UPS December $110 calls are $6 out of the money and look “cheap” at current levels. The breakeven point for the trade would be if UPS shares trade up to $110.30, technically, by Dec. 18. These calls would double if UPS trades above $110.60.
The time frame of five weeks on the aforementioned calls makes me a little nervous though, which is why I’m also looking at the UPS January (2016) $110 calls. This would add nearly another month of time for the trade to play out, with a breakeven point if UPS shares trade up to $110.75, technically, by mid-January 2016. If shares trade to $111.50, these calls would also double. The 52-week high for UPS is north of $114.
The bullish setup on UPS would turn bearish if shares fail to hold $100 going forward. A move below $102 would be the signal to go “short” using put options.
While I’m still rooting for the bulls to make new market highs, I also can’t wait until the next selloff comes, as it will likely be more dramatic than the one we saw during the summer. With the major averages near their summer highs, a continued breakout rally or sudden breakdown could be right around the corner. For that reason, I’m still on the sidelines with UPS, but I will be watching the name into the holiday season for a potential trade.
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