Inside the Economy: Small Caps, Retail and Transportation

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Inside the Economy: Small Caps, Retail and Transportation

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.

Beginning with Granny Retail , that is the only sector besides Sister Semiconductors that is priced above the 50-week moving average.

All the rest of the Family, , and (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.

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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 () 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 divergence 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 .

The third inside sector is Transportation.

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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:

1. Consumers leading is positive and signal the economy is doing ok, but only in pockets
2. 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.
3. 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.

ETF Summary 

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

S&P 500 (SPY) 575 support to hold 600 to clear

Russell 2000 (IWM) 210 pivotal 215 resistance

Dow (DIA) 425 support

Nasdaq (QQQ) 528 support

Regional banks (KRE) 55 support 60 resistance

Semiconductors (SMH) 250 support 260 resistance

Transportation (IYT) 68 resistance

Biotechnology (IBB) 123 support

Retail (XRT) 77 support 80 resistance

Bitcoin (BTCUSD) 102k support 107 resistance

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#Economy #Small #Caps #Retail #Transportation

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