One of the few major exchange-traded funds trading lower into midweek was the iShares Dow Jones Transportation Average Index Fund ETF (NYSE: IYT). IYT has traded lower for the past two days in a row after rallying to their highest levels since the summer of 2011.
With neutral ratings of 6 out of 10, and a short-term, positive edge of more than three-quarters of a percent, shares of IYT likely have further to fall before they are oversold enough to draw traders off the sidelines as new buyers. But with the ETF trading in bull market territory in 2012 and the current selling in IYT representing the fund’s second pullback since then, there may already be a significant number of would-be buyers simply waiting for a catalyst – or a sell-off – that takes IYT to lower, more affordable, levels.
The last time IYT was trading oversold was in the second half of January. Then, a three-day pullback that took IYT into technically oversold territory resulted in a 5-day rally and a gain of more than 2%.
What are some of the component stocks weighing IYT down? Selling in the rails is one potential culprit. Both Union Pacific (NYSE: UNP) and Kansas City Southern (NYSE: KSU) have closed lower for the past two days in a row and are significant holdings of IYT. The third major rail, Norfolk Southern (NYSE: NSC) has been selling off ever since rallying to new, 52-week highs in mid-January.
Another source of short-term weakness in the transports is the two-day retreat in Alaska Air Group (NYSE: ALK). Shares of Alaska Air were trading at new, yearly highs as recently as last week, and have finished lower for three out of the past four trading days.
Heading into Wednesday’s session, shares of ALK have a positive, short-term edge of half a percent, and a neutral, 6 out of 10, rating. All three of the rails mentioned above also have positive edges of half a percent in the short-term, and 6 out of 10 ratings.
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David Penn is Editor in Chief of TradingMarkets.com