Market Tell: UPS Calling!

First, let’s be clear that I don’t consider United Parcel Service (NYSE:UPS)  a Jacksonian Holding, although for other reasons I’ve got enough of it in my portfolio that I have to keep a sharp eye on it.   I do consider the name, however, to be a great market tell for a couple of reasons.  First, it’s one of the core (and largest by market cap) names in the Dow Transportation Index, called sportingly about these parts “the Trannies.”    Second, as the number one shipper of packages (by far) in the U.S., it’s a great gauge of direct-to-home and business-to-business product transfers.    This is increasingly important given the ubiquity of internet commerce in these modern times.   Last, as one of the last supporting pillars of the Teamsters Union (heaven help me), UPS gives a decent insight into the relative power of Labor in the market place.  

In regard to UPS being a core of the transports index, Basic Dow Theory  tells us “the Transports lead” and that hoary theory, ginned up over 110 years ago, was what got me out of the market by Thanksgiving of 2007.   There’s a lot of common sense to “transports lead” as even today, an economy is measured by the amount of products and inventories being carried by trucks, trains, and air freighters.   Much like the Baltic Dry Index, the Transportation Index ($TRAN) gives us an idea of how healthy the economy is looking from a market standpoint.   As a result, if the Transports are rising, or flagging, you can be reasonably assured the rest of the market will be close behind.   Since I consider UPS to be “the leading edge” of the Trannies, I think we can get an even sooner tell on the market by studying its price movement.

That leads us to our UPS daily chart, which has “Vee’d” almost directly north since our March low:

 As much as UPS’s recent rise been good for the port, I really think this sucker needs a rest here, and it may get one very soon.   Note the resistance we are hitting  here at $56.35 or so?    (Note: As of this writing we are at $56.72!)   If we can lift off above that on volume,  we may have a “next phase” of this mini-bull in hand.   As you can see, north of $58.00, UPS has a lot of “free air” where there was not much trading (see the price-volume bars to the left for confirmation).   If she can move above there, we should see some clear sailing all the way to $67.50, or almost ten buck higher.   

That said, I do expect a rest here, and I am hedging my portfolio by selling some UPS May calls here.   We’ll see what we shall see.    Right now, we are above my mentioned resistance line, but below the “free air” at $58.00 … stay tuned!

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UPDATE:  UPS test the resistance level and is found wanting!     Earns “Hammer of death” candle.

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