Where Transports Lead, Small Caps Must Follow

All last week we talked about the importance of the Transportation sector IYT, as a lead indicator.

To repeat, “If IYT closed above the 50 weekly moving average, we surmised that that could be the start of a much larger rally into December”.

And so IYT did and here into December, IYT held onto gains closing up .23%.

However, we also said that “IYT needs the other members of the Family to join in”.

Focusing today on Granddad Russell 2000, IWM or the small caps, IWM continues trade as the weakest of the four indices, which is concerning.

I inferred that “By the time (if it does) this gets to its 50 WMA at 159.50, it’ll be time to go short”.

Why are the Russells so important, and can they continue to run up to the real test of resistance?

The Russell 2000 index is extremely important to the U.S. economic picture.

Since all 2000 stocks are manufactured within the domestic U.S., it is the most accurate way to measure supply.

And, as far as the tariffs go, IWM is the most likely the clearest way to gauge the impact on U.S. goods.

Whereas IYT represents the movement of goods or demand, IWM represents the supply of goods.

Today, IWM rallied with the rest of the indices.

Nevertheless, it was still the weakest of the bunch and sits in a Bearish Phase.

Examining the periphery factors, rates eased some more. The dollar closed strong and oil USO, rallied by nearly 5%.

This does potentially set the stage for inflation to well, inflate.

IWM and IYT both will be impacted by each one of these factors.

Lower rates=better for supply/demand-to a point. If rates ease too much, then the dollar will go back down.

That’s initially better for supply/demand unless-

Oil continues to move higher.

Then, that puts pressure on both supply and demand and the Fed’s current hands-off policy concerning raising the rates.

Where does that leave IWM?

For now, ok since a one-day move, especially in oil, does not a new trend make.

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Disclosure: None.

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