Skepticism Ramps Up as Transportation Stocks Near Technical Support

The Dow Jones Transportation Average (DJT) has soared since the U.S. presidential election amid expectations that President Donald Trump will introduce a series of infrastructure programs in his administration -- a campaign promise echoed in last Friday's inaugural address. Since its Nov. 8 close at 8,328.29, the DJT is up 11% -- with a similar rise for the Dow Jones Industrial Average (DJIA) likely coming under the watchful eye of Dow theory devotees -- and is fresh off a Dec. 9 record high of 9,490.29. While the shares have since pulled back from this notable milestone, last seen trading at 9,246.31, they appear to have found a familiar foothold atop their 50-day trendline, which served as support in the latter half of 2016.

This positive price action has been echoed in the iShares Transportation Average ETF (IYT), an exchange-traded fund that mirrors the movement of stocks trading in the transportation sector. Since its Nov. 8 close at $149.74, IYT has jumped 11.1%, and notched its own all-time peak of $171.16 on Dec. 9. More recently, the shares were hovering near $166.51 -- and not surprisingly, are trading just above potential support at their 50-day moving average.

Even more telling of this momentum in transportation stocks, "Transport Non-Air" is docked near the top of our internal sector scorecard, as compiled by Schaeffer's Senior Quantitative Analyst Rocky White. In fact, of the 27 stocks we follow under this umbrella, 74% are trading above their 80-day moving average, boasting a collective year-over-year return of 20.4%. Nevertheless, there's plenty of skepticism levied toward these outperforming stocks, which could help boost the transportation shares in the near term.

Specifically, just 40% of analysts have issued "buy" recommendations -- down from 49% one year ago. Plus, the average Schaeffer's put/call open interest ratio (SOIR) stands at a top-heavy 1.80, meaning puts collectively outweigh calls on these equities among options set to expire in three months or less. What's more, short interest has risen 9.5% in the last 12 months, and it would take almost a week to cover these bearish bets, at the stocks' average pace of trading. Should transport shares continue to outperform -- and the Dow Jones Transportation Average (DJT) and iShares Transportation Average ETF (IYT) trade above reliable technical support -- an unwinding of this skepticism could provide fresh tailwinds for the sector.

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!