It can’t get any better than this for the transportation stocks.

The iShares Transportation Average ETF (IYT) is up 21% so far in 2023.

Most of that gain happened in just the past six weeks. The sector has rocketed higher as we’ve entered the summer travel season, global economies are opening up, and energy prices have fallen.

It’s the perfect storm for transportation stocks – in a good way. And, it really doesn’t get any better.

But, that’s a problem. You see, if it can’t get better then it can only get worse.

So, traders rushing in to chase the transportation stocks higher at this point are likely to be disappointed in the future.

Take a look at this chart of the Bullish Percent Index for the Transportation Sector (BPTRAN)…

Regular readers know that a bullish percent index measures the percentage of stocks in a given sector that are trading with bullish technical patterns. Since it’s a percentage, the chart can range anywhere from zero to 100.

Typically, when a bullish percent index dips below 30 it indicates oversold conditions. Readings above 80 mean a sector is overbought.

A bullish percent index will generate a buy signal when it turns up from oversold conditions. It generates sell signals when it turns down from overbought levels.

The BPTRAN buy signals are indicated by the blue arrows on the chart. The sell signals are in red.

Here’s how IYT responded to each of those signals in 2023…

If we were trading IYT solely off the BPTRAN signals, we would have purchased IYT in late December, sold it in early February, and bought it again in mid-March.

And, we’d be sitting on a really nice gain at the moment.

The problem now, though, is the BPTRAN is at 100. It can’t go any higher. And, when it turns lower it will generate a sell signal.

Folks who are buying into the transportation sector now are buying into extremely overbought conditions. The risk far outweighs the reward.

With the BPTRAN on the verge of a sell signal, it seems more prudent to refrain from chasing the transportations stocks higher right now. We’ll likely have a better chance to buy them in the months ahead.

Best regards and good trading,

Jeff Clark

Source: Jeff Clark Trader