The S&P 500 is nearing a new high, and according to one top ranked technician, a breakout in one specific sector could set the stage for an even bigger move higher.
"The transports are underperforming the broader market by more than 5 percent year to date," Rich Ross of Evercore ISI said Tuesday on "Trading Nation." The is down nearly 4 percent in 2015, while the S&P 500 is up more than 2 percent over that time.
Technicians often look to the transports as confirmation of a broader rally since the stocks that comprise the index, mainly airlines and truckers and shippers, are so closely tethered to economic activity. According to Ross, the underperformance of the transports has left some market watchers on the sidelines, as many believe the transports are a leading indicator for where the market is heading.
"I tend to disagree and I think the transports could be ready to get in motion and provide the catalyst for the next leg up in the broader market," Ross said.
Looking at the Transportation Average ETF, the IYT, Ross noted that earlier this month, the index violated key support and its 200-day moving average for the first time since October. "Now if we look back, the last time we broke that 200-day moving average, that breakdown proved false and we got a sharp move to the upside," he said.
The IYT is now back above its 200-day moving average, and by Ross's chart work, it's now in position to make a move back to the old high of about $166, or another 5 percent from current levels. "A 5 percent move up in the transports is going to correspond with a move in the broader market as well," he added. Ross has a bullish target on the of 2,200. It was above 2,100 Tuesday afternoon, just 19 points short of its record high set in late February.
The message is simple, said Ross, "buy those transports and stay long the U.S. market."
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