Market Overview

Ride A Rally In Rail With This Transportation ETF

Ride A Rally In Rail With This Transportation ETF

The Dow Jones Transportation Average Index is up about 7 percent year-to-date, lagging the broader market in the process, but there are ways for traders to magnify their transportation gains while playing a potential rebound in the sector.

Enter the Direxion Daily Transportation Bull 3X Shares (NYSE: TPOR), which attempts to deliver triple the daily performance of the Dow Jones Transportation Average Index.

What Happened

The Dow Jones Transportation Average Index is home to just 20 stocks. That benchmark allocates about 47 percent of its weight to rail road operators and related fare. Air freight and logistics providers are almost 27 percent of the benchmark's weight while airlines represent nearly 17 percent.

“Rail companies in particular are riding high on strong consumer spending  and increased demand from domestic manufacturers that has started making its way through their 2018 balance sheets,” said Direxion in a recent note. “Norfolk Southern, Union Pacific, and CSX in particular have had solid YoY revenue growth between 7 and 10 percent according to their most recent reports. The train stocks also have a long-term growth trend starting from early 2016 that has put them up by 125 percent to 230 percent in the case of CSX.”

Why It's Important

Strong economic data coupled with the looming holiday shopping season are among the potential near-term catalysts that could propel TPOR to some fourth-quarter upside.

“Given economic indicators like steadily rising GDP growth and strong consumer sentiment, as well as limited direct exposure to Chinese markets, transport stocks like the above as well as FedEx and UPS will likely see strong results in the upcoming earnings season,” said Direxion.

What's Next?

In a word: earnings. As a leveraged ETF, TPOR is ideal for use around earnings announcements and traders will soon get their chance to use TPOR for that purpose.

From Oct. 15 through Oct. 29, more than 76 percent of the Dow Jones Transportation Average Index reports third-quarter earnings. TPOR has seen year-to-date inflows of $5.15 million.

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