Red-Hot Transports Sending Up Rare Signal

The iShares Transportation Average ETF (IYT) has been among the best exchange-traded funds (ETF) in the first quarter, historically. Over the past 10 years, the fund has ended the quarter higher 70% of the time, averaging a healthy gain of 5.02% -- the best of all ETFs we track. The IYT is exceeding its reputation so far in 2018, too, up 9% and just off a record highs, with help from a solid week forairline stocks. What's more, a recent technical signal for the transports fund suggests the sector could stay red-hot for a while.

IYT Wednesday topped $200 for the first time ever, and today notched an all-time peak of $205.49. The ETF is set for its ninth straight daily win, having yet to close a day lower in 2018. As such, IYT shares are now more than three standard deviations above their 200-day moving average -- a signal that's preceded outperformance in the past, per data from Schaeffer's Quantitative Analyst Chris Prybal.

Considering only one signal every two months, the IYT signal has flashed just four times total since the ETF's inception in 2003: in November 2005; in January 2013; in November 2016, just after the presidential election; and most recently in early December 2017.

After all of the previous signals, the iShares Transportation Average ETF was higher at every point looking one week, one month, three months, and six months out. A week after signals, IYT was up 1.1%, on average, handily exceeding its average anytime one-week gain of 0.2%, looking back to 2003.

A month after signals, IYT generated a gain of 4.7%, on average -- nearly five times its average anytime one-month return of 1%. That trend continues three and six months after signals, with IYT's average gains more than doubling its anytime returns for the same time frames.

Options traders looking to speculate on the fund's short-term momentum can do so at a relative discount, too. The ETF's Schaeffer's Volatility Index (SVI) of 13% is in just the 10th percentile of its annual range, pointing to relatively muted volatility expectations being priced into IYT options.