Transportation stocks — as represented by the iShares Dow Jones Transport. Avg. (ETF) (NYSEARCA:IYT) — have rallied about 1.6% between last Friday and yesterday, Monday, Feb. 27. This might not seem like much, but it does matter when considering the fates of transport stock United Parcel Service, Inc. (NYSE:UPS).
Yes, 1.6% isn’t much in percentage terms. However, considering the relative weakness which this group of stocks exhibited versus the broader stock market, this new-found friskiness is a welcome change and could in the near-term lead to higher prices still.
UPS stock, at about 6.8% currently, is the fourth largest holding of the IYT ETF. Since its late-January earnings report, UPS has badly lagged the broader group of transportation stocks as represented on the first chart.
Note the steep relative underperformance since the relative strength high in the summer of 2016. While through this lens, this relative weakness still looks to be in free fall, let’s also note that this ratio chart is once again reaching the relative weakness lows from March 2015 as denoted by the two orange bubbles.
While this alone is a far cry from a bullish signal, let’s keep this chart in mind as we work through the rest of the analysis below.
When I last discussed UPS stock on Nov. 8, 2016 — the day prior to the U.S. election results — I offered that the stock looked promising for a rally once we got the initial post-election price reaction out of the way. Sure enough, the stock held up after the election results and hit my price target (in the $115-$116 range) a few short weeks later.
UPS Stock Charts
Looking at the multiyear weekly chart, we see that after topping out in mid-December, UPS stock began a corrective phase that measured nearly 15% at the Jan. 31 lows following the earnings report.
On this chart, we see that the area around $104-$105 (the January lows) matches up with horizontal support, as represented by the blue box and the 100-week simple moving average (also blue).
On the daily chart, we see that these January lows — which on Friday, Feb. 24, received a marginal retest — also lined up with the black diagonal line of former resistance that could now turn into support.
From a momentum perspective, note that the MACD oscillator in recent weeks became very oversold and is now showing signs of potential recovery.
Lastly, on Monday, Feb. 27, my proprietary B2 Reversal Indicator flashed a swing trading buy signal as represented by the green up-arrow. This buy signal is occurring at a key technical confluence support area and follows last Friday’s bullish engulfing day.
Active investors could consider taking a long-side stab at UPS stock here using the $104.80 area as a stop loss and targeting the $110 are as a first upside price target.
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