The Transportation Sector Just Had Its Best Day Of 2017

The widely followed Dow Jones Transportation Average Index just had its best day of 2017 and is now up nearly 11 percent year-to-date. There are several signs that this rally is not a one-day wonder. 

Catalysts Ignored

Part of the issue confounding transportation stocks this year is that some components of the Dow Jones Transportation Average Index have not reacted as expected to perceived positive catalysts. For example, with oil prices low, it would have been reasonable to expect more of a boost for airline stocks.

“This sub-par activity for the transportation sector is not for lack of investor enthusiasm. In fact, Airlines have had a fairly headline-heavy year (for better or worse) including high-profile positions undertaken by notorious airline bear Warren Buffett in United Continental Holdings UAL, American Airlines Group Inc. AAL and Southwest Airlines LUV,” said Direxion in a note. “Couple that with continuously low crude oil prices and a presidential administration that campaigned heavily on rebuilding U.S. infrastructure, and transportation stocks should be having a record year.” 

Risk-tolerant traders may want to consider playing a transportation resurgence with the Direxion Daily Transportation Bull 3X Shares TPOR, which debuted earlier this year as the first leveraged transportation ETF. 

The Direxion Daily Transportation Bull 3X Shares is designed to deliver triple the daily returns of the Dow Jones Transportation Average. As is the case with any other leveraged ETF, TPOR is a trade, not an investment, meaning traders should use the fund over intraday time frames, not a buy and hold the product. Airlines account for nearly 19 percent of TPOR's underlying index, making the group the index's third-largest sector weight.

Year-End Potential

TPOR is a leveraged ETF for aggressive traders to consider from now through the end of 2017 because some transportation stocks historically perform well in the fourth quarter.

“The fourth quarter may be the index’s best opportunity to turn around its anemic 2017,” said Direxion. “Over the past five years, the index’s Q4 performance averaged over 7 percent growth and only ended the quarter down once in that span; in 2015. Delivery companies like FedEx Corp. FDX and United Parcel Service Inc. UPS typically drive the Index around the end of the year.”

Some railroad and airline stocks also have a penchant for solid fourth-quarter performances. Shipping and railroad stocks combine for over 56 percent of TPOR's roster.

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