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Transports starting to finally work, as the Airlines the last to take-off?

Today's rally in the Trasnports is meaningful, but largely being overlooked ahead of this afternoon's "exciting" Apple announcement, which was sure to garner all the attention-  Today's move looks set to help the Transport ETF, (IYT) close at possibly the highest levels of the year on a weekly close, and owes much of this recent surge to the Airline sector.  Many of the leading performing stocks today, like UAL, AAL, JBLU, LUV are higher by 4-7% in trading, in a dull market.. Yet most of these have been down most of the year, with negative performance YTD, and have just recently begun to perk up. 

Does this move above the clouds mean the "Turbulence" in Transports is finally over?  Well, in the short run, that answer looks to be a definite YES.  Technical short-term momentum improvement following a lengthy sideways pattern like what's been seen in the Transports for some time is often a time to pay attention, as this can lead to above-average gains in a former lagging sector.  This sudden Mean reversion is nothing new though to the market of 2016, and has been seen with various sectors all year long, most recently with the Financials.

While stretched in the short run after a multi-day huge percentage run-up, many of these airlines have been growing structurally more attractive on their continued stab attempts back at new weekly highs, and the Airlines look to have some room to run, after a dismal eight months thus far.  While it's tough to think Transports will move straight back to highs, this sudden pick-up in momentum is indeed worthy of a careful eye as this group is seemingly one of the last to begin moving higher this year, after a noticeable dropoff from late 2014.

Bottom line-  In the short run, this outperformance in Transports is likely to persist as a result of Wednesday's close above 8k in the DJ Transports and 144 in the IYT.  The ability of this move to hold by end of week would help to add some conviction, and should make this area a good risk/reward for longs in a market which seems to constantly be changing from sector to sector every few weeks.  While not a long-term play by any means, (12-18 months), a 3-6 week and/or potentially 3-6 month period of outperformance is certainly possible.  And in a market like this, where 76% of all active managers have underperformed, utilizing technicals to "FOLLOW" moves of importance like this when they happen is certainly worthwhile, and can help to add alpha to performance.

 

The chart above highlights the DJ Transportation Avg rising to the highest levels since April as of today, Wednesday 9/7/16.  Additional gains look likely in the days and weeks ahead

 

Looking back, the Tr