The Transportation ETF XTN outperformed last week’s market prediction. The buying across the transports sector was stronger than forecast putting transports into a more supportive role for the S&P 500 last week.
Transports have been under-performing the S&P 500 so far in 2017. Year to date the S&P 500 is up about 12% while the Transportation ETF XTN is up about 10%. Airlines are struggling, trains have improved some, and shippers (UPS, FedEx) are doing ok.
Transports generally tend to do well in the last three months of the year. Transports tend to bottom at the end of September or first part of October, then uptrend through mid-December from an increased level of packages, shipping, and people traveling for the holidays.
Transportation ETF Catalyst
One reason that transportation outperformed the market prediction last week is the catalyst of hurricane damages. These horrible disasters lift economic activity because of all the things that need to be rebuilt and replaced. This hurricane season so far has done a record breaking $260 billion in damages according to JP Morgan.
Rebuilding efforts will increase demand in the home construction sector. Bridges, roads, offices will all need to be rebuilt. Transportation fleets will be needed to move lumber, appliances, and many other supplies. Fox Business published this article on the sectors that will get a boost from the hurricanes.
Transportation ETF Prediction
The XTN ETF forecast is that we get a pullback for the week ending September 29, 2017, then the market does a sideways grind with very tight ranges for a week or two before starting to run higher in late October.
Notice the secondary move up that resulted in a breakout. Looking at the PPO indicator you can see that the secondary rally was much weaker than the first as evidenced by the lower PPO histogram bars. That’s not a breakout pattern you should be chasing right now IMO. The breakout in the transportation ETF looks like it could be setting up a headfake. I think it’s very risky buying breakout patterns going into the last week of September and early October. I did this lesson on How To Make Money Trading where I talk about how patterns on a broader market index should influence how you trade a smaller market.