Why Transports Could be a Huge Winner

Mike Turner's picture

Monday, April 5, 2010 - 3:58pm

by Mike Turner

The iShares Dow Jones Transport Average ETF (NYSE: IYT) is flashing a big time buy signal in my propretiary systems. As such, I am selecting this ETF for my Trade of the Week.

Keep in mind that I am also forecasting a mild correction to occur within the next few weeks, so any opening trade should be taken with some caution. Also, the IYT ETF has exhibited more than a fair amount of volatility during the past year, moving from a low in March of 2009, where it traded all the way down to less than $40.00 to its current level near $80.00. I believe this ETF has room to run even higher if the market does not correct too severely or, hopefully, not correct at all.

One more word of caution: The "Expected Move" of 7.64% (my estimate of the relative volatility of a stock on a week-to-week basis) is at the upper end of how much loss many investors can stomach. This means IYT could move lower by $6.05 and still be in an up trend. The higher the EM (Expected Move), the higher the risk of losing money on the trade in a correction. Keep this in mind before jumping in.

  • My technical score for IYT is a very respectable 163 out of a maximum of 200, which rates the fund a "Strong Buy."
  • Even though the fund has doubled in a little over a year, it would not surprise me to see it move much higher. This could be a good trade if it can weather a correction without stopping out.
  • The average daily volume has been increasing on increasing share price for almost three months. This could be a good sign for upward momentum in share price.
  • Both the industry focus (transportation) and global focus (United States) market segments are in bull mode. This is indicative of increasing demand by investors to own equities in these two groupings.

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Mike Turner does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.