Transports ETF Has Momentum

When looking at gains in both short- and long-term momentum, IYT lags the strongly rallying energy, commodity and emerging-market ETFs, and its long-term momentum remains negative. Over the past two weeks through June 11, IYT's 10.25% return places it among PowerShares DB Energy(DBE Quote), PowerShares Golden Dragon(PGJ Quote), Market Vectors Indonesia(IDX Quote), ProShares Ultra QQQ(QLD Quote) and Market Vectors Gulf States(MES Quote), which have two-week returns ranging from 9.73% to 12.44%.

An economic recovery will lead to an improvement in the Transportation Index, and Dow Theory says it must rise to a new high to confirm the rally. Richard Russell recently commented on the Transports failure to surpass the May 6 close of 3404. It's too early to tell if IYT's improvement is due to investor optimism or a sign of recovery -- and it remains to be seen whether the index can continue its brief outperformance.

Compared to other ETFs, IYT remains among the weakest in terms of long-term momentum. IYT's relative momentum declined steadily since the summer of 2008 and bottomed around its current level in early March, and long-term relative momentum was basically unchanged over the past 12 weeks. A failure here wouldn't confirm the bear's economic argument, but it would put the rally in doubt. Further improvement would be positive evidence for the bulls.