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Transports Face Headwinds with Higher Crude Oil Prices

David Becker
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Transports have been a strong driver of US equity prices over the past year, but the recent increase in energy prices have generated headwinds for transportation stocks, and have pushed ahead a new leader in the form of energy stocks. As crude oil prices surged above $107 a barrel, energy ETF’s such as the XLE have taken the lead.

The spread between the IYT transportation ETF and the XLE energy select SPDR has declined rapidly during June. The decline has been 7% since the beginning of the month and 12% since the end of March. June is historically a weak month for transportation stocks. Over the past 15-year the IYT has declined nearly 1% 65% of the time. On the other hand, June is relatively strong for energy shares with the XLE moving higher in June by 0.7% 65% of the time.

Escalating tensions in Iraq spilled over to energy markets, pushing crude oil prices to ten-month highs and setting the stage for stubbornly high gasoline prices in the U.S. to rise even further. After jumping over $2 on Thursday and then climbing on both Friday and Monday, WTI hit a high of $107.68. Brent crude, a benchmark for international oils, has also moved higher. The climb in fuel prices is creating headwinds for transportation companies as their variable input costs become more expensive.

Momentum on the IYT transportation ETF has turned negative with the MACD (moving average convergence divergence) index generating a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crossing below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal.

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