In this article, Forrest Crist-Ruiz, assistant director of trading research and education at MarketGauge.com, explores how the performance of key retail and transportation ETFs can predict potential future market movements.
On Monday, the iShares Transportation Average ETF [IYT] closed the day up 1.4% along with the SPDR S&P Retail ETF [XRT] also performing well and climbing 2.1%.
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 iShares Russell 2000 ETF [IWM], the SPDR S&P Regional Banking ETF [KRE], the VanEck Vectors Semiconductor ETF [SMH], and the iShares Nasdaq Biotechnology ETF [IBB].
Each of these members is close to their 50-day moving average (DMA), while the SMH broke underneath the moving 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 analysing 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 because the 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.
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.