The iShares Dow Jones U.S. Transportation Fund

(IYT) - Get Report

, which tracks the Dow Jones Transportation Index, received some bad news this week when the International Air Transport Association (IATA) announced it expects airlines to lose $9 billion this year.

One of the anticipated drags on the industry is higher oil prices, which have climbed to more than $70 per barrel, up from the $50s in early May. From May 8 through May 13, IYT lost 10.5%. The decline was led by

Overseas Shipholding

(OSG) - Get Report

(5.06% of assets), which lost more than 16%.

FedEx

(FDX) - Get Report

(8.98 %) and

Union Pacific

(UNP) - Get Report

(8.37%) were two other laggards over the period.

After the decline, IYT traded sideways until the end of May, when it began to rally. Leading the way were

Con-way

(CNW)

(6.33%) and

J.B. Hunt

(JBHT) - Get Report

(5.64%), which rallied stronger than the rest of the top holdings.

Between May 13 and June 5, IYT gained 12.2%; Conway advanced roughly 30% and J.B. Hunt added 25%. Railroads Union Pacific,

Burlington Northern

( BNI) (11.91 %) and

Norfolk Southern

(NSC) - Get Report

(6.26%) were the next three best performers, with highly correlated returns that left them up between 16.1 and 17.1 %. Delivery firms FedEx and UPS were among the underperformers, the former up 8.1 % and the latter down 1.7%.

Recent strength is showing up as improved momentum, and IYT's short-term momentum crossed into positive territory during the past week. While not a sign of great strength by itself -- ETFs with similar short-term momentum include

PowerShares Building & Construction

(PKB) - Get Report

,

WisdomTree International Healthcare

( DBR) and

iShares Dow Jones U.S. Technology

(IYW) - Get Report

-- IYT is also showing improved long-term 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) - Get Report

,

PowerShares Golden Dragon

(PGJ) - Get Report

,

Market Vectors Indonesia

(IDX) - Get Report

,

ProShares Ultra QQQ

(QLD) - Get Report

and

Market Vectors Gulf States

(MES)

, 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.

At the time of publication, Dion's fund was long PGJ.

Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.