Tags: IYT | Dow | Transportation | chart

Answer to the Professors' "What Might End This Bull Market" Examination

By    |   Wednesday, 11 Sep 2013 07:58 AM

A few weeks ago, I presented a chart of the iShares Transportation Average (IYT) exchange-traded fund, which tracks the Dow Jones Transportation Average Index, and encouraged my readers to take a free hand at technical analysis, giving suggestions on how a "trend channel" in IYT could suggest price targets for that Index. These price targets might tell us when the bull market that began in March 2009 might come to an end.

My drawing of the trend channel is shown below. I encourage readers and technical analysts to use the website www.freestockcharts.com, which has excellent graphics and charting software. In the chart below, notice that I connected the two suggested lows with a trend line. You can then automatically draw a parallel line across the tops. In addition, you can extend the time axis (horizontally) and the price axis (vertically). This allows you to project the chart out into the future and up to higher prices, which can be difficult for most charting software.

iytanswer.jpg
Selecting Jan. 1, 2014, as a reference date, you can see that if the IYT advances to about the $140 a share level, it will be touching the top line of the channel. A technician would expect a lot of resistance (selling) at this price. In fact, as I alluded to a few weeks ago, I expect that touching the top of the price channel will probably mark the top of this cyclical bull market. This would represent an excellent opportunity for investors to lock in profits and, hopefully, await lower prices in the future.

Given that IYT was selling for $111 at the time the chart was drawn, this means share prices could advance another 26 percent from current levels. That means there is a lot more spunk left in this bull market before we reach "overbought" or "lofty" prices. Remember this when you hear analysts howl about modest corrections, or Syria, or sequestrations or shutting down the government.

Instead, look at recent evidence that the economy is gaining strength. Rail shipments (not just from petroleum and national gas) are hitting new highs. August auto sales and the housing market have also been strong. No wonder U.S. government bonds continue to touch new lows (despite Syria-induced flight capital). Even inflation-indexed bonds, which should catch a bid from fear of higher oil prices due to Mideast tensions, are tanking.

Facts are facts, especially when the data is as consistent as it has been recently. The economy is churning along at a slow rate, but growth continues and might even pick up the pace soon. This is not a bear market scenario. Don't let the shrill quacking of a lame duck administration distract you. Higher stock prices await us.

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Gary-Jakacky
The economy is churning along at a slow rate, but growth continues and might even pick up the pace soon. This is not a bear market scenario. Don't let the shrill quacking of a lame duck administration distract you. Higher stock prices await us.
IYT,Dow,Transportation,chart
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2013-58-11
Wednesday, 11 Sep 2013 07:58 AM
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