Skepticism Ramps Up as Transportation Stocks Near Technical Support

The Dow Jones Transportation Average and iShares Transportation Average ETF have surged since the early November presidential election

Jan 24, 2017 at 12:35 PM
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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.

dow jones transport daily

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.

iyt daily

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.

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