In this article, Forrest Crist-Ruiz, assistant director of trading research and education at MarketGauge.com, considers what is happening with the semiconductor and transportation sectors, and what role the Russell 2000 might play.
On Monday, we considered the momentum in the iShares Transportation Average ETF [IYT] and the VanEck Vectors Semiconductors ETF [SMH], which showed strength when compared to the iShares Russell 2000 ETF [IWM].
On Tuesday, IYT closed near Monday’s low making it a potential bearish engulfing day. Meanwhile, SMH failed to clear resistance at $258.59.
Additionally, because IWM has weak momentum (as mentioned on Monday), the market might need more convincing to move upward.
This is where US president Joe Biden’s infrastructure plan could help, but this also comes with the risk of rising taxes, which the market tends not to favour.
It could also be that the market has already priced in what the infrastructure plan brings to the table.
With that said, last Friday IWM cleared over resistance from its 50-day moving average at $221.
While IYT and SMH have been strong market leaders, they will need support from the small cap index IWM.
Furthermore, if IYT and SMH cannot hold their current price levels, watch for IWM to hold $221 as key support.
This article was originally published on MarketGauge. With over 100 years of combined market experience, MarketGauge's experts provide strategic information to help you achieve your investing goals.