In this article, Forrest Crist-Ruiz, assistant director of trading research and education at MarketGauge.com, explores the effect that transportation could have on other sectors.
Mish’s economic modern family is made up of five key sectors and one index.
Each member has been specifically chosen to help investors and traders navigate the market by giving an easy way to see emerging trends and important price levels.
The family consists of:
- Granddad Russell 2000 (the iShares Russell 200 ETF [IWM])
- Granny retail (the SPDR S&P Retail ETF [XRT])
- Transportation (the iShares Transportation ETF [IYT])
- Prodigal son, regional banks (the SPDR S&P Regional Banking ETF [KRE])
- Brother biotech (the iShares Nasdaq Biotechnology ETF [IBB])
- Sister semiconductors (VanEck Vectors Semiconductor ETF [SMH])
On Friday, IYT broke to new all-time highs. Additionally, IYT holds an important underlying value as it represents the demand side of the market.
If goods are being moved and people are travelling, that bodes well for every other family member.
This is where IBB, XRT, and KRE come in.
All three have pulled back to major moving averages that are often viewed as support levels — XRT and KRE to their 50-day moving averages (DMAs) and IBB to its 200-DMA.
With IYT’s support, we can watch for these sectors to move higher on Monday as they spring off their moving averages.
With that said, while transportation has played its part as a leader, it will need participation from two special family members — the small caps, IWM, and semiconductors, SMH.
On Friday, both were able to rally over their 50-DMAs by the close, which means if both can hold over their MAs, the rest of the family members, along with the overall market, will have a good reason to move upwards on Monday.
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.