Transportation Sector: Running out of Steam?

February 22, 2016

Mish's Daily

By Mish Schneider

Prayers answered?

Over the weekend I wrote about the Transportation Sector (IYT) giving the other sectors and indices the much needed faith to continue with the recent rally.

Almost as if many traders passed around a collection plate for the market, Monday most instruments felt the spirit and posted sizeable gains.

However, is this rally a true spiritual awakening, strong enough to take the market from its Bearish Phase to a Bullish one, or is it more of a superficial and ephemeral “high”?

Granddad Russell 2000 (IWM) keeps my feet on the ground.

The volume since February 12^th has been below the daily average. After 3 days of gapping higher (and holding those gains the week of the 12^th), followed by 2 days of solid consolidation, this week began with yet another gap higher. A case for market enlightenment.

Yet, no Granddad is an island. He’s got kindred. They say you can’t choose your family. True. But I have chosen his. Sort of like Darwin’s natural selection, the rest of my Modern Family(the other sectors and groups) were chosen because they best adapt to the conditions under which they live.

What conditions do the rest of the Family live in?

Before I move on from IWM, I do want to mention that the momentum on the longer term remains negative. Something to consider. The rally thus far has not been enough to get it near the February 1^st high, nor is it anywhere near the weekly moving average it broke down from.

Grandma Retail (XRT) looks a bit more Positive. First off, she is back in an unconfirmed Recovery Phase. XRT is back over the 200 week moving average. The Average daily volume has been better than average on a couple of key days. Momentum has shifted from down to slightly up.

Of course, Transportation (IYT) got me thinking about this recent rally even before the rally began, when it so clearly shifted in momentum on February 4^th. Now, having done its job brilliantly, it could be running out of steam.

Steam-get it? Railroads like Kansas City Southern which gapped higher, Monday closed on its intraday lows. Or United Pacific Corp., which fared better but ran head on into significant resistance.

Perhaps most noteworthy, Hunt (J.B.) Transport tried to clear the 200 DMA, only to close beneath and on its intraday lows.

So if Trannies give it up Tuesday, even with Granny’s strength, I gather the market will lose some of its hope as well.

Then the question will be “Was that it?”

To better answer, look at Semiconductors (struggling to get through 50.00), Biotechnology, (trying to get above last week’s high) and Regional Banks (yet to recapture the 6 month January Calendar Range low).

“Natural selection is good for the herd as a whole, because the general speed and health of the whole group keeps improving by the regular killing of the weakest members…”-Cliff Clavin from Cheers.

S&P 500 (SPY) 195 the big resistance and interestingly where the 50 DMA sits.

Russell 2000 (IWM) 102 resistance kept further rally at bay. 98.00 underlying support at the 10 DMA

Dow (DIA) Like SPY, right into the 50 DMA resistance. If fails 165 will most likely see a lot more selling come in. Then we can see what happens at 162

Nasdaq (QQQ) 103.50 is monthly resistance to note with support now at 99.00

Volatility Index (VIX) Landed right on the 50 DMA which makes sense as a mirror image to SPY

XLF (Financials) 20.87 the 200 week moving average pivotal

KRE (Regional Banks) 35.81 pivotal with support down to 34 if fails that level

SMH (Semiconductors) 50.00 big resistance with the 50 DMA just above. 47.70 minor support to hold

IYT (Transportation) 134.23 a gap to fill. If this breaks 128 time to think short

IBB (Biotechnology) Last week’s high 267.60 making this the weak family member possibly ready for slaughter

XRT (Retail) Unconfirmed Recovery Phase. 41.47 the 50 DMA pivotal

GLD (Gold Trust) 115 now ultimate support. Then we are looking at 112

SLV (Silver) Held on to the 200 DMA for dear life

GDX (Gold Miners) First time in a while volume slacked off. However, still closed green and near the recent highs

USO (US Oil Fund) Over 9 better. Under 8.40 not so much