Trader’s Narrative

The last time I visited the transport sector, it was in mid August when the whole market was making its intermediate low. Like many sectors, the transportation sector had an extremely low bullish percent index. It reached a low of 15% which was as low as it had been for more than 2 years:

And once again, the bullish percent chart for this sector is in deep oversold territory. It is already bouncing back but there is still an opportunity to pick up great bargains in rails, trucking and shipping stocks.

Although the sector was deeply oversold the index didn’t really respond last time (August 2007). I think this time price will be more accommodating to a rally since it has fallen to major support and also, we’ve already seen bargain buying create a spike bottom.

Transportation stocks are cracking right, left and center. GWR is a freight railroad operator that gapped down large today:

The first print and candle were without the specialist so they had scant volume. But by the second and third candlesticks, GWR was open for trading and it had printed extremely unusual volume (purple square). After the first 15 minutes of trading, it was obvious that GWR was not only a gap down, but it was in play. This is why I drilled down and looked at it through the shorter time interval of 5 minutes.

The second and third candles left long lower wicks which meant that buyers were coming in and supporting price. On the daily, GWR had put in a nice double top and had now clearly cracked after spending some time dawdling below the long term moving average. But still, here was a hint that bargain hunters were stepping up.

The next candle was wide range and it closed up! What’s more it was a very strong candle with the close being almost at its high. As well, this took price above the opening range’s high. The next few candles were narrower in range as price contracted. They weren’t terribly strong candles but they had higher lows (look carefully).

The entry was at the break of the 7th candle’s high (green line) with the stop loss being below (red line). GWR trended up in a semi-orderly fashion and went through a few more contraction and expansionary phases - can you spot them on the chart?

I featured this chart today to show that eventhough a stock gaps down with a terrible technical picture on the higher time frame, it can actually go up! Everything is possible when it comes to financial markets and often times it is what you least expect or simply ignore that will come to pass.