In rush of transports earnings, one group has reached a 'key juncture,' trader says

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Transports break down, but traders see sliver of opportunity

A flood of airline earnings out Thursday failed to give the transports sector a lift on Thursday.

JetBlueSouthwest Airlines and American Airlines were all higher after reporting on their recent quarters, but the IYT transports ETF was flat on the day.

One corner of the transports is on the cusp of a make-or-break moment, according to Matt Maley, chief market strategist at Miller Tabak.

"You look at the S&P 500 railroad index, and it broke above its all-time high last week, and that's good but it was only a slight break and then it's pulled back down and it's right basically at that level so we're worried -- is this a head fake or is it really going to break out?" Maley said Wednesday on CNBC's "Trading Nation."

"We're kind of at a key juncture right now and I'm going to be watching the railroad stocks to see what happens next," said Maley.

Union Pacific led the rail names higher on Thursday even after falling short of estimates for its fourth quarter. CEO Lance Fritz said Thursday morning that the "phase one" trade deal between the U.S. and China should stop declines in freight volumes.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, said a catalog of problems could put pressure on the transports here – from weak freight numbers to the Boeing Max 737 groundings, which continue to weigh on certain airlines, to a spreading coronavirus outbreak in China.

"The story isn't over. That's why I'm very leery of the transports at this point, I don't think the IYT is going to break the $200 level here, because nobody who is going to come out with earnings is going to grossly surprise to the upside. So at this point, I think it's going to be pretty much fizzling out," said Schlossberg during the same segment.

The IYT ETF, which holds Union Pacific and UPS among other names, most recently traded just above $197.

Schlossberg also worries that weakness in the broader economy is going to weigh on the group.

"The mainstream economy isn't growing as much as the equity market is growing, and I think you see this disconnect most glaringly in this particular sector and I think it's going to pull everything else down as we go forward," Schlossberg said.

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