As tech stocks take a back seat, transportation stocks have been tapped to drive the bus. This shouldn’t be too surprising. After all, the capital fleeing technology had to head somewhere. And fortunately for bulls, it remained in the market instead of heading for the sidelines. The rotation has allowed the broader market to stay afloat — the S&P 500 is down a scant 0.5% — while profit takers struck in tech.
With last Friday’s solid rally, the iShares Transportation Average ETF (NYSEARCA:IYT) was able to register a new, all-time closing high at $174,57. And with that, IYT has now gained 7.2% year-to-date.
It’s not as inspiring as the tech sector, but perhaps it’s poised for some back-half catch-up if the rotation continues. And with the IYT at record highs, it’s not like there’s any overhead resistance so buyers can press their advantage here.
In scanning the top holdings of IYT, these three stocks stood out for their healthy uptrends and quality setups. I believe each of these three transportation stocks are ready to truck higher, and I have trade suggestions that will help you capture any upside.
Transportation Stocks That Could Break Out: FedEx (FDX)
Click to Enlarge
FedEx Corporation (NYSE:FDX) has arguably been one of the best performers in the transports space this year. Credit for the gains goes to the monster breakout staged by FDX stock in June. It was a long time coming.
Previous to that, FedEx was essentially flat on the year. But that’s all history. With the stock now firmly entrenched in an uptrend complete with rising 20-, 50- and 200-day moving averages, it’s game on for buyers.
Volume patterns are also enhancing a bullish view here. The June breakout and subsequent follow-through have seen accumulation days along the way. And while FDX may need a few days to digest its recent gains, any and all weakness is a buy.
The Trade: For now, the most likely play is a breakout over the high of the past week. If FDX takes out $219.75, then buy the Aug $210/$220 call spread for around $6.60.
Transportation Stocks That Could Break Out: United Parcel Service (UPS)
Click to Enlarge
Next up, we have United Parcel Service, Inc. (NYSE:UPS).
While UPS remains a far cry from its record highs, improvements have been made over the past month. The budding uptrend has lifted shares back above the 200-day moving average for the first time in six months. Since slipping on a banana peel during its January earnings announcement, the stock had been dead money until recently.
But now, demand is on the rise, transportation stocks are en vogue, and UPS looks the best it has looked all year long. The past month of consolidation has built a nice, high base pattern that could deliver a breakout trade. What’s more, UPS doesn’t have much resistance between $112 and $116 due to an unfilled earnings gap, so it could be quick to rise once shares pop above $112.
The Trade: If you want more confirmation, wait for a break of $112. Otherwise, sell the Aug $105/$100 bull put spread for 55 cents.
Transportation Stocks That Could Break Out: Alaska Air Group (ALK)
Click to Enlarge
For our final selection, we’re going high — sky-high. Alaska Air Group, Inc. (NYSE:ALK) shares have officially bottomed and started trending higher once more. The reversal has carried the stock back above all major moving averages. Friday’s jump was particularly impressive since it carried ALK above an intermediate-term resistance level.
Further rotation into transports could return ALK to the century mark, which is roughly 7% higher from here. While some backing-and-filling may be in order following last week’s rally, ALK is a buy on a break of Friday’s high ($93.98).
The Trade: To capitalize, buy the Aug $90/$95 bull call spread for around $2.75.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high probability cash flow? Join Tyler for an upcoming webinar on how to systematically sell Iron Condors for monthly income. The webinar will be held on Monday, July 10 @ 8:30 p.m. ET.
