Every Wednesday, Marc Chaikin applies his groundbreaking analysis to an ETF or a sector. Today, he looks at SPDR S&P Transportation ETF (XTN).
The Transportation group has been outperforming the overall stock market and has recently made new highs. This strength, led by Airlines, Trucking and Railroad stocks reflects the overall strength in the U.S. economy. Two key economic metrics highlight this strength. Rail traffic has reached new 3 year highs with recent July reports indicating a 10% year over year increase in rail car loadings. The second economic number which points to an improving U.S. economy is the low level of jobless claims which now stands at a 5 year trough. In spite of the cautious naysayers, the action of the Transportation industry confirms that the economy is strong and growing.
There are two Transportation ETFs to consider. One is the SPDR S&P Transportation ETF (XTN), while the other is the iShares Dow Jones Transportation Average ETF (IYT). The major difference between the two, other than size, is the fact that the XTN is equal weighted while the IYT is price weighted. We prefer the equal weighted XTN which benefits from interest in some of the mid- sized Airline and Trucking stocks which have a bullish Chaikin Power Gauge rating.
The Chaikin Power Bar below indicates that 19 stocks in the XTN have a bullish Power Gauge rating while only 2 have a bearish rating.
With the strength in the Transportation group likely to continue, the simple way to benefit is to buy the XTN, preferably on short-term pullbacks, or to find the strongest stocks in the XTN, based on their Power Gauge ratings, which are likely to outperform the market and the ETF itself.
The Portfolio Health Check is an excellent tool to help zero in on the strongest stocks in an outperforming ETF like the SPDR S&P Transportation ETF (XTN). By looking at the individual component stocks through the lens of the 20 factor Chaikin Power Gauge rating, you can easily find the stocks in this outperforming ETF with the strongest potential over the next 3-6 months. These are the stocks to consider buying as this strong group has recently seen renewed strength, triggering a Relative Strength Buy Signal in Chaikin Analytics as it reversed up from its 21 day average price.
The Chaikin Power Grid (see below) maps stocks and industry groups from strong to weak so you can easily determine the best and worst stocks in any ETF. To find the strongest stocks in the XTN, we look to the upper right quadrant of the Power Grid (strong Power Gauge stocks) where we find stocks with the best potential for price gains over the next 3-6 months. Our favorites in this ETF include the Airline stocks, namely Southwest Air (LUV), Jet Blue (JBLU) and Spirit Airlines (SAVE). A very successful hedge fund, Lone Pine Capital, recently announced a 6% stake in Spirit Airlines. In the Trucking industry Amerco (UHAL) and Ryder Systems (R), stand out as attractive. Ryder made a new high yesterday while Amerco recently triggered a Relative Strength Buy Signal in Chaikin Analytics. Finally in the Railroad group, CSX Corp. (CSX) and Union Pacific (UNP) spiked up to new highs yesterday and show strong institutional buying based on the Chaikin Money Flow indicator.
Over time, strong stocks in strong industry groups will outperform weak stocks in weak groups.
A number of these stocks will be reporting earnings tomorrow and there is usually price volatility surrounding earnings reports. If there are short-term dips in stocks like Southwest Air (LUV), Jet Blue (JBLU) or Union Pacific (UNP), all of which report earnings before the opening Thursday July 24th, this may represent a decent buying opportunity.
Disclaimer: Chaikin Analytics LLC is not registered as a securities broker-dealer or advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Chaikin Analytics does not recommend the purchase of any stock or advise on the suitability of any trade. The information presented is generic in nature and is not to be construed as an endorsement, recommendation, advice or any offer or solicitation to buy or sell securities or any kind, but solely as information requiring further research as to suitability, accuracy and appropriateness. Users bear sole responsibility for their own stock research and decisions. Read the entire disclaimer.
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