Trade of the Day: United Parcel Service (UPS)

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Wall Street finally noticed the action in the transports, as the sector broke above its 50-day moving average last week. I told my Momentum Options members in late January that a rebound could be in store, with a possible test to the major moving averages forthcoming. I mentioned to them at the time, with the Dow Jones Transportation Average (TRAN) just below 6,700, that the index had fallen over 1,000 points since late December. The bulls have recovered more than half of the losses since then, along with the 50-day moving average.

The 100- and 200-day moving averages are trying to level out, with short-term resistance at 7,400-7,600. A close above the latter would be a very bullish setup, and the transports could have a shot at reaching 8,000 at some point in March or April. The index will need to hold 7,200-7,150 going forward, as a close below the latter would negate the bullish setup.

transports

One of my favorite ways to play the transports is by watching shares of United Parcel Service (UPS) as they trade somewhat in tandem, for the most part. Shares of UPS made a nice move above the 50-day moving average earlier this month but struggled to clear the 100- and 200-day moving averages last week.

The recovery keeps a solid uptrend in play from mid-January, with shares possibly testing $100-$102 over the near term if the bulls can clear and hold $98.25-$98.50. Support at $96 would need to hold on any pullback, and a close below $94.50 would violate the bullish setup.

transports

Bullish traders could target the UPS March 100 calls (UPS160318C00100000) if shares continue to show strength and hold support on any pullback. These call options would easily double if UPS shares are trading near $102 by mid-March.

The UPS April 105 calls (UPS160415C00105000) would give a bullish trade an additional month to play out, with a breakeven point at $105.40, technically, by mid-April. A double would occur in the options if UPS shares trade above $105.80 over the next seven weeks.

Bearish traders could target March or April put options if shares do fall below $94.50 in the coming weeks. The UPS March 92.50 put (UPS160318P00092500) is an option to play weakness, and it would double if shares of UPS retest $91.

The development in the transports is something that will help or hurt market sentiment going forward.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/02/united-parcel-service-ups-transports/.

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