DataTrader: Using IYT to Track the Transports
There are a lot of reasons why traders and active investors may want to track and trade the stocks of the Dow Jones Transportation Average. And with the iShares Dow Jones Transportation Average Index Fund ETF (IYT), there is no easier way to do it.
You don’t have to be a diehard Dow theorist to appreciate the Transportation Average, or to accept the idea that many of the stocks in the Transportaton Average – from FedEx (FDX) and UPS (UPS) to railroads like CSX Corp (CSX) and airlines like Southwest Airlines (LUV) – are especially sensitive to the twists and turns of the business cycle.
When the business cycle revs up and more goods and services are being delivered from supplier to customer, these stocks are among those to react positively first. So many traders and investors keep an eye on these stocks or, more readily, on the Transportation Average ETF, as a barometer, potentially even a leading one, of likely economic activity.
Of late, the IYT has been on a tear, most recently driven higher by gains in stocks like Ryder Systems (R) and Con-Way (CNW) (both up more than 5% ahead of trading on Wednesday). But these gains have pushed the exchange-traded fund into territory from which it has historically retreated in the short term. In fact, Tuesday’s close marked the fifth time in the past seven trading days that IYT has rallied to this level, a level that also corresponds with three previous short term reversals in the ETF since late August.
Continued strength in IYT may be difficult to resist for those looking to get long in this sector. But patience may provide short term traders and active investors alike the opportunity to pick up shares of this potentially-prescient ETF at a lower price.
Quantified data and research on exchange-traded funds like IYT is available each evening after the market close. To learn more, click here.
David Penn is Editor in Chief of TradingMarkets.com