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A connection between sector and stock?

We’re talking about IYT (the transports ETF) and UNP. These two are related because IYT is the transport sector and UNP is the #2 weighted stock within this particular ETF.

So there’s a synergy there.

But why these two in particular?…

The Background:

The first reason, and probably the best reason, is there was a very clear bullish structure on IYT’s chart, which I call an uptrend. I measure an uptrend by using moving averages. So for this one in particular, I called it a double green trend. Why? Because it had the 8, 13, 21, and 34 period exponential moving averages working together to indicate that IYT had a trend

The same can be said for UNP. It too was a double green with the 8, 13, 21, and 34 period exponential moving averages working together to indicate UNP had a trend.

This is where the familiar buy the dip will be applicable.

What’s it mean to “buy the dip”?

It means A) you have a trend and B) you’re willing to play a pullback or a retracement.

How I Played It:

When I’m trading I have several tools that I come back to time and time again. You’re probably familiar with a few like my GRaB Candles or the 34 EMA Wave. For this particular trade, we took advantage of the 3, 8 Propulsion.

What’s it mean to us the 3, 8 Propulsion, Gang?

It means that the 3 and 8 exponential moving averages are the settings for a tool called propulsion. That means that the 3 has crossed higher through the 8, which is a classic moving average cross technique. When that happens, along with a certain interaction with price, I have a valid entry at the 8 exponential moving average.

Propulsion dots also act as what I call a “self correcting smart exponential moving average”. It knows when to turn off and on — they’re very powerful.

When I get two of these on a chart, I’m going to start to pay attention. And what I had for this was an entry that happened right as we hit the 8 exponential value. So that low becomes the buy.

For this trade, that low was roughly 208.60 – 208.70, and that becomes the trigger.

Now the power in having that support level down there when it comes to the strategy execution, is that the bearish momentum required for IYT to hit 208.60 – 208.70 is going to allow me to buy a call option. That’s the foundation of anything I’ll do from a directional standpoint going forward.

And a sell off is a perfect opportunity to focus on a long call.

That’s the first opportunity I could take in this situation with IYT.

Fun Fact: Subsequent candles and subsequent days might give me different opportunities, but they’ll all be rooted in what type of position would I take in the anticipation of higher highs (a continued uptrend).

It was the same setup in UNP:

The same moving average cross technique that we saw in IYT, but this time the selling off occurred around 204.40 – 204.35 with the firing off of a long call. It’s the first time you can do when a move like this happens on the pullback.

Why do I have a bullish opinion of this market?

It goes back to the double greens I was referencing earlier and the structure of the moving averages. Even after pullbacks, I’m going to take the path of least resistance, which is up in this case. I’m just being a little bit more opportunistic and aggressive at a shallower 8 exponential moving average entry.

Now As Far As Targets Go…

You’ll notice we’re at some significant highs. In fact, if you look back we haven’t been this high in a very long time.

So what am I going to do?

I’m going to use a historical price movement range to put a ruler up against this market and say to myself that if IYT moves up 4 to 5 points, I’ll have the opportunity to scale out or take profit. Generally when I’m feeling ambitious I’ll also look for a 2X move too, so that would be a move in IYT of 8 to 10 points.

On UNP the historical price movement that we’re talking about is different. It’s 6 to 7 points. So I want to see that move in my favor, or if I want to be ambitious I’ll look for a 2X move here as well (so 12 to 14 points).

And that’s our setup in IYT and UNP, Gang.

Keep up with the volatility!

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