Mish's Market Minute

Is the Transportation Sector (IYT) Stifling a Major Market Breakout?

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The S&P 500 (SPY) and the Small-caps Russell 2000 (IWM) linger near all-time highs. This looks like a great setup for a rally past resistance and into higher territory. However, there are two potential problems to consider.

The first is the Transportation sector (IYT), which has broken its 50-day moving average and is now looking to confirm a cautionary phase, with a second daily close under its major moving average. In the past, we have watched IYT as an underlying market strength indicator. Additionally, should IYT continue lower, it could be signaling a weakening market picture. If the market continues to pause or stall out at these pivotal breakout levels, investors/traders could grow restless and begin to sell if they perceive weakening market momentum.

The second problem comes from Thursday's Consumer Price Index report, along with Jobless claims. Both reports will be released at 8:30 ET and could either boost or hinder bullish price action.

On the brighter side, we are continuing to see signs of economic improvement as U.S wholesalers sales rose +0.8% in April. Additionally, in May, inventories of wholesale stock were also up +0.8%. This shows that certain supply chains are beginning to strengthen as the economy continues to pick up the pace.

With that said, we could be seeing a divergence of investors sentiment in the Transportation sector and the general market. This means we should stay cautious if IYT continues to break down and watch how it affects the small-cap Index (IWM), along with the S&P 500.


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ETF Summary

  • S&P 500 (SPY): 422.82 needs to clear and hold.
  • Russell 2000 (IWM): 234.53 high to clear.
  • Dow (DIA): 351 resistance. 342.43 support.
  • Nasdaq (QQQ): 338.19 resistance area.
  • KRE (Regional Banks): Broke 70.00. Next support 68.80.
  • SMH (Semiconductors): 244.81 support. 258.59 resistance.
  • IYT (Transportation): Broke 268.53 the 50-DMA.
  • IBB (Biotechnology): 159.30 new support to hold.
  • XRT (Retail): Needs to clear 96.27 and stay over.


Forrest Crist-Ruiz

MarketGauge.com

Assistant Director of Trading Research and Education

Mish Schneider
About the author: serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision. Learn More
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