The Dow Transportation iShares (IYT) recovered nicely this week, but the ETF is meeting resistance from broken support and a little more work is required for an upside breakout. On the daily chart, IYT formed a double top and confirmed this bearish reversal pattern with a break below the June low.
Support is not going quietly though. IYT moved below 75 in mid August, but suddenly firmed and bounced back to broken support. There was another dip to 75 and the stock again bounced back to broken support this week. A key tenet of technical analysis is that broken support turns into resistance and this is exactly what is happening with IYT. There was a support zone around 79 and this turned into a resistance zone around 80.
The bears still have the edge. I view the Aug-Sep price action as a consolidation and the double top support break still dominates the chart. A move below 74 would signal a continuation of the Jul-Aug decline and this would project further weakness towards the double top target around 69.
A move above the current resistance area would call for a reassessment of the double top. On the 30 minute chart, IYT formed a flag over the last few days and I will be watching 81 for a breakout. The ETF surged on Monday-Tuesday and then consolidated the rest of the week. This is a critical area and a breakout would have both short-term and medium-term implications.
