ETF Trends
ETF Trends

The iShares Transportation Average ETF (NYSEArca: IYT), which tracks the Dow Jones Transportation Average, is down 7% year-to-date, but the bulk of those losses were confined to early January as the largest transportation exchange traded fund has steadied in recent weeks to post a 1% one-month gain.

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.

Stymied by tumbling shares of railroad operators and airlines that have surprisingly fallen in unison with oil prices, transportation exchange traded funds have recently been disappointments. [Transportation ETFs Need Help]

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.

Investors also need to be mindful of IYT’s technical situation.

IYT’s “ratio hit channel resistance at a year ago and decline almost as hard as it did during the financial crisis in 2009. The sharp 12-month decline took the ratio down to channel support at, where a small rally has taken place of late. This rally reflects that Transports, are reflecting some relative strength against the broad markets, for the first time in a year,” said Chris Kimble of Kimble Charting Solutions.

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]

“Now this hard hit index is attempting to break above steep falling resistance at above. Transports have been the leader on the downside for the past 12-months. The Power of the Pattern believes that what the leader to the downside here does going forward, could be very important to the broad markets,” adds Kimble.

Dow Jones Transportation Average

Chart Courtesy: Kimble Charting Solutions

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.