Tough Times For Transportation ETFs

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About: iShares Transportation Average ETF (IYT), Includes: FDX, FTXR, XKST, XTN
by: Tom Lydon

The iShares Transportation Average ETF (BATS:IYT) and transportation stocks are following the broader market lower. IYT slumped 2.75% Monday, pushing its month-to-date loss to over 13%, before gaining 2.54 percent on Wednesday following a volatile market session the day after Christmas.

IYT tracks the Dow Jones Transportation Average (DJT). Transportation stocks were expected to benefit from lower oil prices, and while that has been the case for airline stocks, other industry groups represented in IYT, including railroads.

Recent commentary from shipping and logistics giant FedEx (NYSE:FDX) sent the transportation sector tumbling. FedEx is one of IYT's largest holdings.

"Last week was certainly a rough one for the broad equity benchmarks, but it was particularly brutal for shipping giant FedEx. On Wednesday, the stock registered its biggest daily percentage drop in a decade after taking a hatchet to its fiscal 2019 profit forecast," according to Schaeffer's Investment Research.

Ominous Signs

With IYT's recent struggles comes mounting technical pressure and indications the transportation sector could face more near-term downside.

"Plus, IYT wrapped up the week by closing two consecutive sessions beneath its 1,000-day moving average for the first time in over two years," notes Schaeffer's. "This longer-term moving average is one of those 'under-the-radar' technical levels we often like to track in our research, and the historical significance of the 1,000-day for IYT had been flagged by Schaeffer's Quantitative Analyst Chris Prybal just ahead of Thursday's closing break."

IYT currently resides nearly 26% below its 52-week high and 19.37% below its 200-day moving average. Relative strength readings on the fund indicate it is oversold.

"Looking back over the past eight years or so, there have been only a few previous examples of IYT diving below its 1,000-day moving average while simultaneously trading below both its 200-day and 320-day trendlines, as it is now," according to Schaeffer's. "The prior occurrences in 2011 and 2016 coincided with extremely oversold readings from the exchange-traded fund's (ETFs) 14-day Relative Strength Index (RSI) - and those breaks below the 1,000-day were relatively brief, lasting anywhere from just two days (around the time of the June 2016 Brexit vote) to just under two months (mid-August to early October 2011, and early January to mid-February 2016)."

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