Money generally rotates from one sector to another. Identifying the rotation early in the cycle can make a big difference in trading successfully. If you look at a long-term chart of the Dow Jones Transportation Index (below), you'll see that the group has been trending higher for several years. However, there have been periods when money has rotated out of the group as transports consolidated prior gains. In the past week, we have seen transportation issues rise to the front of the pack. This past week saw transports finish at an all-time high close. Volume was accelerating during this rise, indicative of accumulation. Outside of temporary pullbacks, expect continued strength in this group until proven otherwise.
Notice the inverse head and shoulders pattern that has formed over the past nine months or so. This represents a continuation pattern that upon breakout measures to 5900 in time. Continue to look for solid trading ideas in this group and you'll likely be rewarded during 2007.
