Transportation, Retail Sector at Crossroads as Economic Pressures Mount

Monday, we looked at the Retail Sector in detail. 

We determined that Monday’s action is still within the range of the huge sell-off 2 weeks ago. 

Plus, should XRT struggle to close out the month back above the 23-month moving average, it will indicate that consumer spending is in a 2-year business cycle contraction. 

Granny Retail often works in tandem with the Transportation sector, seen through the lens of . 

IYT daily chart shows  

1. Price is under all indicators-January calendar range, 50 and 200-DMAs and in a distribution phase 
2. Transportation grossly underperforms the SPY 
3. Real Motion is in a death cross and bearish divergence to price. 
4. IYT did not have a clean bottoming formation. 

The weekly chart while struggling, in contrast to XRT Retail, IYT remains above the 200-WMA (green). 

Note the mean reversion on the weekly Real Motion indicator. But also note the bearish diversion with the 200-DMA above the 50-DMA (blue). 

Can IYT help XRT relax? 

Or will the current economic slowdown seen in the retail sector further drag down transportation? 

Looking at the monthly chart:

We determined that XRT had to clear back above its 23-month moving average by March 31st or it closes out the first quarter in economic contraction based on a 2-year business cycle. 

You can see here why it is so important to watch the monthly chart in IYT. 

While Retail sits below the 23-month MA (blue), IYT holds it by a slim margin. 

2 Key members of the Economic Modern Family are at a precipice. 

IYT must hold around the current levels, which could help XRT relax. 

It could just as easily close out the month under the 23-month MA, in which case you will have the consumer and the measure of how robust goods and people are moving both flashing a significant warning.

ETF Summary  

(Pivotal means short-term bullish above that level and bearish below)  

• S&P 500 (SPY) 574 the 200-DMA resistance 
• Russell 2000 (IWM) Good bounce and needs so much more 
• Dow (DIA) Back over the 200-DMA now 420 support 
• Nasdaq (QQQ) 494 the 200-DMA resistance 
• Regional banks (KRE) 58-59 to clear and one of the better-looking sectors 
• Semiconductors (SMH) 245 overhead resistance 
• Transportation (IYT) 65.00 pivotal 
• Biotechnology (IBB) 130 support 140 to clear  
• Retail (XRT) 70 support to hold and thru 72 way better