Shares of transportation stocks as represented by the iShares Dow Jones Transport. Avg. (ETF) (BATS:IYT) underperformed the broader stock market on Tuesday, closing lower by 2.25%. Furthermore, transportation stocks as a group, and especially airline stocks, have lagged the broader market’s rebound over the past couple of weeks. To wit, shares of United Continental Holdings Inc (NYSE:UAL) over the past couple of days bumped into technical resistance where active investors and traders could try a trade to the short side.
Before looking at the charts of UAL stock, allow me to say a word on the broader stock market environment. Ever since the January highs, the market for many participants has become decisively more difficult to operate.
Yes we did have a sharp reflex rally off the February lows over the past couple of weeks, but aside from some mega-cap technology stocks, the rally wasn’t all that “easy” or straight up. The rally has been choppy. From where I sit, we will likely endure more volatility in coming weeks/months for now, which is why I am looking for opportunities with well-defined reward to risk on both the long as well as on the short side.
UAL Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
This recent lagging of transportation stocks and UAL stock in particular caught my attention. To be clear, on the longer-term up-trend, United stock remains bullish and holding its trends, although the stock did mark its chart with a lower high in January compared to the highs in May and July 2017.
Nevertheless, from a big-picture trend-following perspective UAL does not offer any major warning signs just yet as the broader up-trends remain in place.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Moving over to the daily chart, we see that United stock bounced nicely over the past couple of weeks, but in relative terms to, say, the S&P 500 or large-cap technology stocks, the bounce remained feeble in the sense that it has so far not gotten anywhere near to its January highs.
Looking at this a little closer, we see that by this past Monday, UAL stock had retraced exactly 50% of the entire late-January/early February rally. Yesterday the stock reversed lower along with the broader market, thus far rejecting the 50% retracement line.
Active traders and investors looking to play the market from both the long and short side in this choppier environment now have a well-defined line in the sand around the $70 area to lean against United stock for a short-side trade back down into the mid to low $60s. Any push higher and back above $70 would offer a clear stop loss signal.
Check out Anthony Mirhaydari’s Daily Market Outlook for Feb. 28.
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