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Prepare For Transportation Tests With This ETF

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Prepare For Transportation Tests With This ETF

The week of April 15 brings a fair amount of first-quarter earnings reports. Just over 14 percent of the S&P 500 delivers earnings during that week, but for some sectors and industries, the percentages of earnings reports coming in between April 15 and April 19 are significantly higher.

What Happened

During the week starting Monday, April 15th, 31.62 percent of the members of the widely followed Dow Jones Transportation Average Index step into the earnings confessional. Last week, the Dow Jones Transportation Average Index gained more than 2 percent, pushing its year-to-date gain to 17.56 percent. The transportation index resides 6.24 percent below its 52-week high.

Why It's Important

Next week's transportation earnings onslaught could bring opportunity for the traders considering the Direxion Daily Transportation Bull 3X Shares (NYSE: TPOR). TPOR, the leader among leveraged transportation exchange traded funds (ETFs), attempts to deliver triple the daily returns of the Dow Jones Transportation Average.

About three-quarters of that index is allocated to road and railroad companies and air freight and logistics providers.

“Several Class I railroads will report their first-quarter earnings next week, and executives could discuss then why volumes have trended lower so far this year,” according to FreightWaves. “Weather impacts, including the recent historic floods in the Midwest, uncertainty over U.S. trade relations between China on the one hand and Canada and Mexico on the other, and a slowing U.S. economy have been bandied about as potential reasons for rail’s softening volumes so far this year.”

Norfolk Southern Corp. (NYSE: NSC) and UnionPacific Corp. (NYSE: UNP) combine for over 19 percent of the Dow Jones Transportation Average. Kansas City Southern (NYSE: KSU) is another top 10 component in that index.

What's Next

Last Friday, TPOR gained 3 percent on more than triple the average daily volume, helping the leveraged transportation ETF climb above its 200-day moving average for the first time since December. That could be a positive sign heading in the upcoming spate of earnings reports.

Traders that look into TPOR next week may also want to keep the leveraged transportation ETF on their radars for the week of April 22 when more than 37 percent of TPOR's underlying index reports first-quarter results.

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