ETF of the Week: iShares Dow Jones Transportation Average Index Fund ETF

The recent pullback in stocks provided short-term traders and active investors with a variety of opportunities to buy short-term weakness in otherwise uptrending markets.

One of those opportunities came in the iShares Dow Jones Transportation Average Index Fund ETF (NYSE: IYZ), which includes among its top holdings stocks like Union Pacific Corporation (NYSE: UNP), FedEx Corporation (NYSE: FDX) and Alaska Air Group (NYSE: ALK). IYT reached a new, six-month high in early February, and traders have spent most of the past month taking profits.

This selling has resulted in IYT closing in technically oversold territory more than a few times in February and early March. In fact, shares of IYT have been in “consider buying” territory more often than not during its February correction, with occasional rallies taking the ETF above its 5-day moving average briefly, for example, but even then with its top, 8 out of 10 or 9 out of 10 ratings remaining intact.

The most recent pullback in IYT – and accompanying ratings upgrade – was another example of how traders have been able to take advantage of the otherwise relentless selling in IYT. Pulling back for a second day and finishing technically oversold in early March, shares of IYT again retreated to levels where traders have been more inclined to buy than sell on a historical basis. And those traders to took advantage of these renewed extreme conditions – signalled here with another ratings upgrade to 9 out of 10 – were able to scale into the iShares Dow Jones Transportation Average Index Fund just as the ETF was begining its turnaround back to the upside.

IYT chart

While aggressive traders may have begun scaling in to IYT’s pullback when it earned its “consider buying” rating of 8 out of 10, even conservative traders and investors who waited for the exchange-traded fund to earn a 9 out of 10 would have benefited as the ETF rallied into strength, closing both above its 5-day moving average and with a Relative Strength Index value of more than 70.

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