On Tuesday, the transportation sector closed green on the day, while the rest of the Economic Modern Family closed red.
The most prominent break of support came from the Russell 2000 (IWM) and the Regional Banking sector (KRE). IWM fell under support at $218, while KRE fell below its 50-day moving average at $66. Tuesday's market also brought a rotation into commodities like Gold (GLD), Corn (CORN), Sugar (CANE) and the Invesco Agricultural ETF (DBA).
Investors flocking into commodities could be viewed as a weakening market signal. It can also be seen as a sign of inflation, or at least worry of rising inflation. While the Federal Reserve is watching inflation based on criteria which does not incorporate food and energy, the agriculture sector tells a different story, as food commodities have steadily been rising.
On the other hand, if the transportation sector can hold its current price area, this will show that the demand side of the market is strong. This makes IYT the silver lining of Tuesday's market and an important indicator to watch going forward. Therefore, we should watch the transportation sector to add strength to the market if it holds its current price level. If not, watch for investors to continue to rotate into commodities as fear of a weak market and inflation rises.
- S&P 500 (SPY): 412.31 pivotal area
- Russell 2000 (IWM): Broke 218.83 support. Next support 213.14
- Dow (DIA): Flirting with 338.12 the 10-DMA
- Nasdaq (QQQ): 330.32 next support area
- KRE (Regional Banks): Broke support at 66.18. Next support level at 63.38
- SMH (Semiconductors): 242.33 the 50-DMA
- IYT (Transportation): Needs to hold 259
- IBB (Biotechnology): 146 support, resistance 155.65
- XRT (Retail): Next support 86.50 the 50-DMA
Assistant Director of Trading Research and Education