Two Sectors, Same Family-One Grew Much Bigger

March 3, 2019

Mish's Daily

By Mish Schneider

These adorable Havanese puppies are siblings.

The one on the left is the male. The one on the right is the female.

Typically, this breed does not produce such a huge difference in size between the male and the female.

These sibs are a bit of an anomaly.

When stocks ended the week, we saw a similar anomaly in the market and particularly in the Modern Family.

While the Granddad Russell 2000 IWM gained in price, the Transitional Transportation IYT sector, struggled, closing down on the day at 188.69.  

A while back we examined the relationship between the two.

We surmised that IWM represents the supply side, while Transportation represents the demand side.

Up until this past week, IYT or demand was outperforming IWM or supply.

What might this inversion, or supply outperforming demand, mean for the market?

Before we examine the weekly charts, another note about Friday’s action.

The S&P 500 had an inside day Thursday. SPY behaved beautifully on Friday, taking out Wednesday’s high and closing above it. Hence, SPY kept the uptrend intact.

IYT, even with the weak close, held 187.93, the area that it had to hold in order to keep the bulls happy.

However, it did not clear 189.96, Wednesday’s high and that could be troubling going forward.

Looking at the relationship between IWM and IYT could help.

While IWM closed above the 50-week moving average (blue line), IYT did not.

Why could that be significant?

Because IYT had closed above its 50-WMA for 2-weeks in a row before the failure of it this past week.

Was IYT ahead of itself and now sending us a messge that there is too much supply and not enough demand?

Perhaps IYT is smarter than Granddad.

Rates and the dollar jumped. No deal has been made with China. And the North Korea talks went nowhere.

Furthermore, consumer sentiment for the US was revised lower to 93.8 in February 2019 from 95.5. The latest figure was above January's near two-year low of 91.2 due to a slight improvement in consumer expectations. However, the current economic conditions continue to deteriorate.

I know it’s easy to poo poo, (something I see alot of with two Havanese puppies around the house), IYT and focus on the fun stuff.

Like traders did on Friday with SPY and IWM and we do with two adorable puppies!

But, warning to the wise, keep close eyes on our Transitional baromoter IYT.

Bulls want to see IYT catch up. They do not want to see IWM fail its 50-WMA on its third week, they way IYT just did.

S&P 500 (SPY) The inside day reconciled to the upside. Until 281.31 clears though, it is still working off a topping pattern with Friday’s low 278.83 support to hold.

Russell 2000 (IWM) Granddad limped on low volume above the 200-DMA which makes 157.86 a pivotal place to close above or below on Monday

Dow (DIA) This also had an Inside day last week. And like SPY, reconciled to the upside. Also like SPY, until it clears 262.36, also working a topping pattern with 259.60 area key support.

Nasdaq (QQQ) This is the only index that did not have a topping pattern. If it gaps over 174.66, impressive and something to follow.

KRE (Regional Banks) 55.98 support with 58.31 the 50-WMA resistance above.

SMH (Semiconductors) The inside day reconciled to the upside. Until 106.27 clears though, it is still working off a topping pattern with 103 support to hold.

IYT (Transportation) Keep 189.61 in your mind as the ultimate weekly pivotal level to hold or not

IBB (Biotechnology) Here is where our happy speculators live-closed on new 2019 highs. Are the specs right? Stay tuned

XRT (Retail) 45.50 is the nearest support to hold if this has a chance to clear 46.84 the 50-WMA and stick.

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