On Monday, the transportation sector (IYT) closed the day +1.4%, along with the Retail sector (XRT) also performing well, up +2.11%. These two sectors are currently attempting to lead the market higher, but are having trouble getting other members of the Economic Modern Family to join in.
The rest of the family includes the Russell 2000 (IWM), Regional Banks (KRE), Semiconductors (SMH) and Biotech (IBB). Each of these members is close to their 50-day moving average and, in the case of SMH, broke underneath the MA on Monday.
In past articles, IYT leading the market has been a recurring theme. The movement of goods correlates to underlying economic strength, as consumers drive the fundamentals of company earnings via supply and demand. Additionally, IYT can be especially useful right now, for its opposition in price when compared to other Family members is clear. This shows a deeper layer to the Family's overall price action.
A clear market move is when all Family members head in the one direction at the same time. While this is a rare event, it sets the definition for analyzing the ideal market direction. This allows us to dissect the general market picture based on that standard. Therefore, we should watch for all the members to hold over their 50-DMA as the nearest support level and for SMH to either stay close to its 50-DMA or clear back over. IWM should also begin to head back over resistance from the $230 area, as more time spent underneath will create worry and choppy market conditions.
This is what we can look for from a bullish standpoint. However, this relies upon the continued support from the transportation sector. If IYT becomes weak and begins to head back towards its major moving averages, stay cautious, as the market could begin to rotate money into safer holdings.
- S&P 500 (SPY): Resistance 420.72
- Russell 2000 (IWM): Resistance 230.95
- Dow (DIA): Needs to clear 342.43
- Nasdaq (QQQ): 333.97 support
- KRE (Regional Banks): Support 67.32
- SMH (Semiconductors): Broke support from the 50-DMA at 242
- IYT (Transportation): New highs
- IBB (Biotechnology): 153.28 pivotal
- XRT (Retail): 96.27 resistance
Assistant Director of Trading Research and Education