The Dow Jones Transportation Average is outpacing the Dow Jones Industrial Average by about 4 percent thus far in 2019. The strength of the average, composed of primarily 20 airline, rail and trucking stocks, is showing itself in exchange-traded funds (ETFs) that track the transportation sector.
The index is getting help from strong earnings results from the likes of Kansas City Southern, CSX and United Continental. From a technical standpoint, analysts are liking what they see.
“I think the risk/reward setup right here is very favorable,” said MKM Partners’ JC O’Hara during a “Trading Nation” segment on CNBC. “If we look at the Dow Jones Industrial Transport index, you know we’ve seen over the last few months that this pattern has been a bullish accumulation pattern taking the shape of an inverse head and shoulders and we’re actually breaking out of that pattern today.”
Here are three ETFs that are moving in the transportation sector:
1. iShares Transportation Average ETF (IYT )–up 13.85 percent YTD: seeks to track the investment results of the Dow Jones Transportation Average Index composed of U.S. equities in the transportation sector. The underlying index measures the performance of large, well-known companies within the transportation sector of the U.S. equity market.
2. SPDR S&P Transportation ETF (XTN )–up 13.33 percent: seeks to provide investment results that correspond generally to the total return performance of an index derived from the transportation segment of a U.S. total market composite index. The index represents the transportation segment of the S&P Total Market Index (“S&P TMI”).
3. Direxion Daily Transportation Bull 3X Shares (TPOR)–up 42.58 percent YTD: seeks daily investment results equal to 300 percent of the daily performance of the Dow Jones Transportation Average. The index measures the performance of large, well-known companies within the transportation industry.
The transportation index is a key metric for analysts to watch in terms of assessing the health of the broad market. As far as any potential roadblocks for transportation ETFs, given the way the sector has risen at a rapid rate thus far this year, the rally could stall at some point.
“Remember the transports are coming off of 20-year high volumes in 2018, so they’re going to naturally slow,” said Chantico Global’s Gina Sanchez. “The ride isn’t going to be quite as solid as the S&P on average, but it would still be very, very good. They’re expected to grow at an earnings rate at about 10% growth for the rest of the year, so that’s still pretty good.”
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