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.
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.
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