Let's notice that from July 2007 into the third week of January, rising oil prices, as reflected by the US Oil Trust ETF (USO), depressed prices of the DJ Transports, as reflected by the iShares DJ Transport ETF (IYT). However, since late January, oil prices and the transports both generally have maintained an upward trajectory. Why? My sense is that the most recent upmove in oil from $70 to $82 in the USO (from $86 to $103 in nearby crude oil) reflects the final, speculative blow-off type move in oil prices -- the aftermath of a sideways congestion period, juxtaposed against a transportation index that is discounting improved economic conditions that should be forthcoming from an accommodative (soon to become a MORE accommodative) Fed. If I am correct about either or both of those perceptions, then the IYT should be considered a potentially very rewarding long position.



Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com, a real-time diary of his technical chart analysis and trading alerts on all major markets. For more of Mike Paulenoff, sign up for a free 15-Day trial to his MPTrader Diary by clicking here.