Considering how much the market has absorbed and yet keeps on ticking, I thought we should look at what Druckenmiller calls the “inside” sectors of the US economy.
Coincidentally, these sectors are all part of my Economic Modern Family.
For more on that please look here.
Beginning with Granny Retail XRT, that is the only sector besides Sister Semiconductors SMH that is priced above the 50-week moving average.
All the rest of the Family, Biotechnology, Regional Banks and Transportation (an inside sector) are sitting below the 50 week moving averages and in the case of Biotech IBB, sitting below the 50 and 200-week moving averages.
I mention this because the Retail sector is leading!
The all-time high is still far away, however. In 2021 XRT reached a zenith at 104.31.
That’s significant. It makes me wonder what would stimulate consumers to go all in and spend money with vengeance.
More realistically, the consumers are continuing to spend, but far more selectively.
And the Vanity trade, or impact of the diet drugs, is just getting going.
XRT clearly must hold around $75 now. The next hurdle is around $80.
One major caveat is the real motion indicator. That is flashing a bearish divergence in momentum. Something to watch.
Then there is the Russell 2000 IWM small caps or what we call Granddad.
While IWM jumped some hurdles, it is still below its 50-WMA. Small caps made their all-time high in 2024 at 244.98.
In 2021, IWM soared to 244.46.
By some viewpoints, one could say that it is a 3-year double top which puts the small caps at risk until that level clears.
Regardless, for right now, there is a bearish diversion in momentum with the red dots under the moving averages, while price is between the 50- and 200-week moving averages.
Granddad is also underperforming SPY.
The third inside sector is Transportation.
Transportation IYT, like IWM, sits below the 50-WMA.
Also, like IWM, the momentum is in a bearish divergence, and it is underperforming the SPY.
For starters, a move above 67.30 would be constructive.
Then, IYT must hold above 62.
IYTs all-time high is 75.59 made in 2024.
The takeaways from the “inside” are:
- Consumers leading is positive and signal the economy is doing ok, but only in pockets
- Small caps are trying, but we are far from a major breakout which reflect the uncertainties we see in the economy from tariffs to geopolitics to the U.S. deficit and bloated spending.
- Transportation looks similar to small caps. Hopeful, a long way from illustrating a booming economy, and most likely the most vulnerable given the uncertain macro.
Historically, this week is statistically a bearish one.
The Family will let us know the right side to be on.
Twitter: @marketminute
The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.
