This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

What to Make of Weakness in Transportation ETF

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( ETF Expert) -- You don't have to agree with every aspect of "Dow Theory" to appreciate one of its most venerable features. In particular, the Dow Jones Transportation Index should lead the way higher for the Dow Jones Industrial Average.

Why has this particular axiom maintained a level of popularity for more than a century? In essence, transporters "take" materials to the industrial giants that "make" goods. It follows that if transportation companies are increasing their profits, their share prices should rise, thereafter blazing a trail for industrial producers.

Granted, the theoretical construct may or may not strike a chord with the investing population today. Some argue that the movement of raw goods is less critical in service-oriented economies.

Nevertheless, a large percentage of technical traders do pay attention to the relationship between the price of the transports segment and the price of the industrials sector. I myself view changes in the price ratio between the iShares DJ Transports (IYT) and the SPDR Dow Jones Industrials Average (DIA). In a word or three, when the IYT:DIA line is climbing, the transportation segment is outperforming the industrials segment. This is what many Dow theorists and technicians like to see in a healthy bull market period. Indeed, this is precisely what we witnessed from the lows of Oct. 2011 to the start of Feb. 2012.



Since the beginning of February, however, IYT:DIA has trended downward. It is below a 50-day as well as a 200-day moving average. And while the drop-off isn't as dramatic as what occurred in July 2011, the direction is still disconcerting.

The headlines may ballyhoo a blowout earnings season for Apple, or they may trumpet an overwhelming majority of corporations beating their profit expectations. Still, United Parcel Service (UPS) registered a dismal 2.4% decline in its quarterly earnings. Was the UPS "miss" an isolated incident? Is air and truck delivery in decent shape? Or, conversely, is there sufficient reason to believe that global commerce is weakening?

One thing is for certain: The ETFs that are hitting fresh 52-week highs typically excel in conservative investing environments. The winners include dividend funds like iShares High Dividend Equity (HDV), high-yield corporate bonds like SPDR High Yield Corporate (JNK), REITs like Vanguard REIT (VNQ), pharmaceuticals like PowerShares Dynamic Pharmaceuticals (PJP) and intermediate-term investment grade corporate credit like iShares Intermediate Corporate Credit Bond (CIU).

In truth, with the S&P 500 near 1400 and the Nasdaq well above 3000, I wouldn't sweat underperformance from IYT. Then again, smart ETF investors have stop-limit orders and/or hedges to protect against the possibility of a drastic downturn.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

Gary Gordon reads:

Real Clear Markets
Jeff Miller
indexuniverse
Charles Kirk
On Twitter, Gary Gordon follows:

Jonathan Hoenig
Doug Kass
Hard Assets Investor

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $126.37 2.53%
FB $83.20 -0.13%
GOOG $552.03 0.67%
TSLA $190.57 3.01%
YHOO $44.95 -0.33%

Markets

DOW 17,976.31 +263.65 1.49%
S&P 500 2,086.24 +25.22 1.22%
NASDAQ 4,947.4410 +56.2220 1.15%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs