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Dow Jones Transportation Average
The action in the transports over the past several months has been very erratic. Last week, the index broke above the 50-day moving average. The price has made a quick "V" move up to the November high. Hopefully, this isn't another double-top formation like it had last May and June. If the transports are going to continue their rise, price will need to hold above the 4700 level. If it breaks that, then we've probably seen a false move and a setup for another downside correction.
Last week, Burlington Northern ( BNI) broke above the three-month downtrend and the 50-day moving average. A pullback to the $76 area would be healthy to set up another move higher. If that level doesn't hold and the stock breaks below $74, it would signal that a larger correction is in the works.
Norfolk Southern ( NSC) also made a strong turnaround, breaking above resistance last week. The stock will need to hold the $50 level to confirm the recent strength. If there is renewed weakness and the stock breaks below $48, we will probably see a test of the August and September lows.
Over the past several months, Union Pacific ( UNP) has built a better base than Burlington Northern or Norfolk Southern. It also has had better institutional support, as price has held above the 200-day moving average since October. The breakout will need to find support around $92. If we see a drop below $89, we could quickly see a retracement to the September lows. I'm always trying to keep you aware of emerging groups in the market. If these stocks hold their breakout levels and move higher, it would be a good sign for the economy. However, be careful, because other areas of the market are showing signs of topping out, and a full-fledged correction could take these stocks with them.