The Massive Melt-Up Breakout No One Saw Coming…

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One bad trading day couldn’t keep the Nasdaq down.

The tech-heavy index bounced almost 50 points yesterday, erasing some of the losses from its big move lower this week.

Just a day removed from the FANG meltdown, the financial noise machine has moved on to celebrate Dow 24,000 and the Big Board’s longest streak of monthly gains in more than 20 years.

All is right with the world. We’ve managed to survive another one-day bear market. Break out the bubbly!

Yesterday’s action goes to show that investors are rarely rewarded for quickly flipping bearish during a roaring bull market. The big tech stocks might be taking a break. But that doesn’t mean every other sector on the market is headed lower.

In fact, the Nasdaq’s slump has helped uncover a couple of new setups that could turn into incredibly lucrative trades heading into 2018. As you saw yesterday, it’s time for us to look beyond the FANGs and find the trades no one else is talking about…

We already showed you how the SPDR S&P Retail ETF (NYSE:XRT) is breaking out of its funk. While Amazon shares chill out, the retail sector is suddenly becoming a new market leader during the busy holiday shopping season. “Dead malls” are coming back to life and throwing off gains once again.

The brick and mortar retail comeback isn’t the only market rotation we’re witnessing this holiday season. There’s another major breakout popping up in one of the market’s most important (and overlooked) sectors…

I’m talking about transportation stocks.

Transportation stocks like airlines, freight, and delivery names weren’t exactly setting the world on fire earlier this year. Transportation stocks went nowhere for the first eight months of 2017. That’s not an exaggeration. The Dow Jones Transportation Average topped out on the first day of March. This false breakout led to a swift move lower. Just a few weeks later and these stocks were dangerously close to correction territory.

A quick comeback saved the sector from disaster. But the group wasn’t ready for prime time just yet. By the end of August, the transports were flat on the year — even as the major averages jumped to double-digit gains.

It’s no secret that these stocks have been absolute dogs for months. But as the market’s melt-up mode shifts into overdrive this holiday season, these sickly transports are starting to outperform the major averages in a big way…

Transports endured a sharp summer correction followed by a September rally and the October – November pullback.

But as we explained earlier this month, these stocks were quietly bubbling higher. The tell happened two weeks ago when the transports posted a monster rally, launching higher by more than 1.6% in one day. What followed this week was nothing short of incredible…

As it turns out, the little rally we just mentioned was the spark the sector needed to set up for this week’s big breakout. The Dow Jones Transportation Average just went on a three-day tear fit for the history books. The group posted a massive three-day gain of more than 7% to close out November trading.

It’s great to see these lagging transportation stocks make up for lost ground. After all, transports endured an actual bear market as the major average chopped along for the past two years. It’s time to make up for lost ground.

Sincerely,

Greg Guenthner
for The Daily Reckoning

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