The iShares Transportation Average ETF (NYSEArca: IYT), which tracks the Dow Jones Transportation Average, is higher by more than 11% over the past month, indicating the cyclical sector fund is mounting a comeback of sorts.
According to the U.S. Bureau of Transportation, the volume of freight transported by road, rail, air, barge and pipelines has been flattening or lower since the end of 2014, Reuters reports. Meanwhile, stubbornly low energy prices may help the transportation industry cut down on costs.
Transportation stocks were expected to benefit from lower oil prices and while that has been the case for airline stocks, other industry groups represented in IYT, including railroads, have struggled. Railroad operators, which are nearly 22% of IYT’s weight, making that the ETF’s third-largest industry allocation, are giving investors cause for concern with transportation stocks.
The good news for investors is that although transportation stocks and IYT struggled last year, the ETF’s recent surge has improved its technical, indicating more gains could be on the way for the fund.
“The weekly chart is positive with the ETF above its key weekly moving average of $129.56 and above its 200-week simple moving average of $128.38. The weekly momentum reading is projected to rise to 33.30 this week up from 26.07 on Feb. 19,” according to TheStreet.com.
Last year, the railway industry weakened on lower rail traffic after the drop in energy prices, notably from oil and coal companies. Over the first 35 weeks 2015, U.S. railroads experienced cumulative volume that was down more than 4% year-over-year. However, the pressures may have already been priced in, and the industry has a number of factors that will help support further growth.
Market observers are optimistic about a cyclical recovery where U.S. consumers and businesses spend more, which would add to increased activity through railways and transportation sectors. Railroads are popular plays among some of the largest investors, including Bill Gates and Warren Buffett. [Sector ETF to Play Warren Buffett, Bill Gates’ Pick]
“Investors looking to buy IYT should place a good till canceled limit order to buy the ETF if it drops to $128.81, which is a key level on technical charts until the end of February. Investors looking to reduce holdings should place a good until canceled limit order to sell the ETF if it rises to $136.24, which is a key level on technical charts until the end of 2016,” adds The Street.
iShares Transportation Average ETF
