Relative weakness in an ETF indexed to the Dow Jones Transportation Average in early 2012 was a warning sign to investors before the stock sell-off.
Now, however, the iShares Dow Jones Transportation Average Index ETF (NYSEArca: IYT) is outperforming the market and giving bulls confidence this week’s equity rebound is sustainable.
In February, some technical analysts said IYT underperforming the S&P 500 was a cause for concern. [Transportation ETF Performance Raises Flags]
U.S. stocks topped off in April before the May sell-off on Europe’s lingering debt crisis. [Transportation ETFs Send a Warning]
“The iShares DJ Transportation Average ETF (IYT) has outperformed since late March. The relative trend versus the S&P 500 is still rising and should continue given the positive price action,” said Tarquin Coe, Investors Intelligence technical analyst, in a note Friday.
“Trading is finding support around its 200-day exponential moving average. There have been brief underside breaks but the price sharply springs back to the average, implying support,” he added. “Momentum, the MACD, is turning up from oversold and showing a slight bullish divergence.”
One of the tenets of Dow Theory is that both the blue-chip Dow Jones Industrial Average and the transports should move in the same direction to keep a market trend in place.
iShares Dow Jones Transportation Average Index ETF
SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA)
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.