Momentum Divergences in Key Market Indicators

The transportation sector (IYT) closed .36% lower Tuesday. It was the only member of the Economic Modern Family to end the day red.

On the other hand, the retail sector (XRT) ended almost a half percent higher.

Because of how retail and transportation are interconnected via supply and demand, watching them can, at times, give off early warning signals for more fundamental economic issues.

With that said, all the family members including IYT, XRT, Russell 2000 (IWM), Regional Banks (KRE), Biotech (IBB) and Semiconductors (SMH) are sitting in a bullish phase, meaning the price is over the 50-DMA and the 50-DMA is over the 200-DMA. Furthermore, to create a warning, either IYT or XRT would need to break their 50-DMA for 2 consecutive days.

With so much happening, including Wednesday’s inauguration and talk of another stimulus package close to 2 trillion dollars, the road to recovery could stay bullish.

As Keith wrote in his weekly outlook, the market has some mixed signals. The Dow, sitting on the 10-DMA, has negative momentum. Transportation (IYT) and Junk Bonds (JNK) do as well. The Volatility (VXX) has positive momentum. That means we have 4 different divergences to look at, including 3 where the price has not confirmed the negative divergence and 1 where the price has not confirmed the positive divergence.

With a bit more patience, we will soon learn whether the momentum is flash in the diverging pan, or a sign that something bigger is coming.

In the latest edition of StockCharts TV‘s Mish’s Market Minute, Mish discusses the agricultural tech space now that food commodities have blasted off. Also, she covers the rush to space, a key theme for 2021, with an analysis of some actionable stocks to take advantage of as we explore the new space exploration frontier.

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  • S&P 500 (SPY): 381.49 resistance. Closed over the 10-DMA at 377.53
  • Russell 2000 (IWM): 215 high to clear
  • Dow (DIA): Flirting with the 10-DMA at 309.26
  • Nasdaq (QQQ): 310 support. Resistance 319.39
  • KRE (Regional Banks): Needs to clear and hold over 59.38. Support 55.90
  • SMH (Semiconductors): 232 new support area
  • IYT (Transportation): 226.96 the 10-DMA
  • IBB (Biotechnology): New highs
  • XRT (Retail): Support at 70 the 10-DMA

Mish Schneider

Director of Trading Research and Education

Forrest Crist-Ruiz

Assistant Director of Trading Research and Education