TRAN (Murphy)

Chart 3 shows the relative performance of the three transportation groups since the start of 2007. The rails are the strongest, while the airlines are the weakest. The one I'm most concerned about today is the truckers. That's because that index is testing an important resistance line. The weekly bars in Chart 4 show a relatively rare price formation which is called the "broadening top". That formation resembles an "expanding triangle" where the two trendlines drawn over and under the expanding tops and bottoms diverge from one another. Here's how my 1986 edition of Technical Analysis of the Futures Markets descibes that rare price pattern: "A broadening top... shows three successively higher peaks and two declining troughs. This type of expanding triangle usually occurs at market tops." Since this is the third peak since 2006, and prices are up against the resistance line, truckers are at a critical spot. Adding to today's profit-taking in the Dow Transports is a -3.5% plunge in airlines. Those are another two reasons why the transportation rally may stall here.