Transportation ETF (IYT) Makes A Definitive Statement

It may have been legendary anchorman Ron Burgundy who quipped, "Don't act like you're not impressed." Well... I am not acting. I am impressed by the Dow Jones Transportations Index Fund (IYT).

In an earlier post on the Transports ETF, I explained a number of reasons why this index will be a key barometer for a stock recovery. Dow Theorists use it to decipher bull and bear trends. More notably, transporting goods from one place to another is a fundamental driver for the U.S. economy.

Keep in mind, the media is focused entirely on the financial sector (e.g., credit crunch/financial collapse) and the consumer discretionary segment (e.g, consumers buying things). However,the epic moves higher for Financials (XLF) and Consumer Discretionary (XLY) last week were tempered by equally epic moves lower in the sell-off of commodities, materials, metals and mining.

Yet, nobody is talking about the "ohhhhhnnnnly" major economic segment that is rising above its 39-week (200-day) moving average on strong volume. The Dow Jones Transportations Index Fund (IYT) finished about 1.5% below its trendline on Friday, and as I type, it is approximately 1% higher than its 200-day moving average. (For purists, the actual price of the index needs to climb above 4750, and the DJT is currently trading at 4875.)

Why do I maintain that this is potentially momentous? Because our economy basically came into question in August of 2007... when the Fed wanted to raise rates and the markets wanted the Fed to lower them. That's when they came to the rescue with an emergency discount window cut. The chart above shows us, though, that it's been 7 months since the Dow Jones Transportation Average climbed above its trendline.

Here's another feature to recognize. The daily 1% up or down moves of late gave the S&P 500 SPDR (SPY) a respectable 1.4% gain in the previous week. Financials (XLF) picked up a whopping 5.2% and Consumer Discretionary (XLY) appreciated 2.8% in value.

Yet the only other major segment to surpass two percentage points in the holiday-shortened week was... Transports (IYT). It garnered roughly 2.5%.

Health care, industrials, technology, energy, materials, utilities... none had the kind of run that transportation stocks did. It's not that these other segments are going to remain in the doldrums, however. Instead, the losers of last year -- financials, consumer discretionary, transports -- will lead the stock recovery when it take place.

Is it already happening? the Transportations Index Fund (IYT) rising above its trendline is a first step. Yet there will need to be a reduction in regular 1% prices swings before enough fear is shaken from the investment environment. Until that time... buckle up!

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