UPS, Transports Have Positive Weekly Charts -- but Be Careful

As measured by the iShares Transportation Average ETF (IYT) , the transportation sector has had a positive weekly chart since July 8. Still, the sector remains in correction territory, down 15.6% below its all-time high of $167.80, set back in November 2014.

United Parcel Service (UPS) , the second-largest component of the exchange-traded fund, has had a positive weekly chart since June 10. It is now overbought in front of delivering its earnings report for the second quarter before the opening bell on Friday. This stock has been a strong performer so far in 2016 and is just 4.9% below its all-time high of $114.40, set on Jan. 22, 2015.

UPS has been benefiting from its relationship with the U.S. Postal Service. When consumers enter a UPS store, they can drop off mail, make hard copies or digital copies of documents and choose package delivery options among both delivery services.

Analysts expect UPS to earn $1.43 a share. Domestic services and package growth are factors that could result in a positive reaction to earnings.

Here's the daily chart for the transportation ETF.

Courtesy of MetaStock Xenith

The transportation ETF closed Wednesday at $141.15, up 4.8% year to date. It is in correction territory, 15.9% below its all-time high of $167.80, set on Nov. 28, 2014. The ETF is 22.8% above its 2016 low of $114.91, set on Jan. 20.

The horizontal lines are the Fibonacci retracements of the 31.5% decline from the all-time high to the 2016 low. Note that the 2016 high of $146.07, set on April 20, was shy of the 61.8% retracement of $147.60. The first wave down held the 38.2% retracement of $125.11 on May 13.

After dipping to its 23.6% retracement of $127.39 on June 27, the ETF popped to as high as $144.41 on July 14. It closed Wednesday just below its 50% retracement of $141.36.

Here's the weekly chart for the transportation ETF.

Courtesy of MetaStock Xenith

The weekly chart shows a red line through the price bars, marking the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average, the "reversion to the mean." The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicate overbought and readings below 20.00 indicate oversold. A negative weekly chart shows the stock below its key weekly moving average, with weekly momentum declining below 80.00 in a trend toward 20.00.

The weekly chart for the transportation ETF is positive, with the ETF above its key weekly moving average of $139.56 and above its 200-week simple moving average of $133.72. The weekly momentum reading is projected to rise to 66.90 this week, up from 56.46 on July 22.

Investors looking to buy the ETF should consider doing so on weakness to $136.24 which is a key level on technical charts until the end of 2016.

Investors looking to reduce holdings should consider selling strength to $142.30, which is another key level on technical charts until the end of September.

Here's the daily chart for UPS.

Courtesy of MetaStock Xenith

UPS closed Wednesday at $108.80, up 13.1% year to date. It is 4.9% below its all-time high of $114.40, set on Jan. 22, 2015. The stock is 24.6% above its 2016 low of $87.30, set on Jan. 20.

The horizontal lines are the Fibonacci retracements of the decline from the Jan. 22, 2015, high to the Jan 20, 2016, low. The first wave up to as high as $107.21 on April 20 was above the 61.8% retracement of $104.05. UPS was above this key level between March 17 and May 3. A decline to the 50% retracement of $100.85 held between May 6 and May 19.

The rebound that followed continued until the stock traded as high as $111.83 on July 14, topping the transports ETF. The stock had a down day on Wednesday, closing at $108.80.

Here's the weekly chart for UPS.

Courtesy of MetaStock Xenith

The weekly chart for UPS is positive but overbought, with the stock above its key weekly moving average of $107.69 and above its 200-week simple moving average of $95.96. The weekly momentum reading is projected to rise to 83.99, up from 83.49 on July 22, becoming more overbought above the threshold of 80.00.

Investors looking to buy UPS should consider buying weakness to $101.59, which is a key level on technical charts until the end of September. My annual level lags at $93.89.

Investors looking to reduce holdings should consider selling strength to $111.84, which is a key level on technical charts until the end of this week.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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