United Parcel Services' (UPS) stock surged over 2.5% during Monday's powerful transport move. The Dow Jones Transportation Index rose to new 2016 highs after jumping 3.2%, its best single day gain since early February. All 20 members of the index finished on the plus side, a very positive sign for the overall market.
UPS, the largest member of the Transport Index, cleared a very heavy overhead trend line with Monday's breakout. This trend line links a series of monthly highs going back to the July 2016 peak near $111.85.
Shortly after after UPS' rally off the Brexit low ran out of steam in mid-July the stock entered a narrowing consolidation pattern. While moving sideways over the last 14 weeks UPS put in three straight lower monthly highs. Despite this increasing overhead pressure the $106 area held in extremely well.
UPS bottomed initially bottomed here in late July, held this area again at the September low and contained a very volatile post-earnings session on Oct. 27. As November began the range had become even tighter but it was clear UPS had a major support zone in place near $106.
Monday's breakout move could spark a fresh rally leg for the stock. As this develops investors should take a much more positive view of the action. UPS closed above the October high Monday, leaving behind layers of nearby support. The stock is now a low risk buy between $109.20 and $108.
A close back below the $108 area would begin to pierce the lower band of support near last week's high signaling another failed breakout. On the upside UPS is set up well for a move past $112. Along the way the September high near $110.70 will be a key hurdle.