At the intersection of economic dynamism and resilience, the sectors nestled within the heart of the American economy present an intriguing narrative – one eloquently dissected by the esteemed investor, Druckenmiller. These foundational sectors not only shape the tapestry of economic activity but are concurrently represented within what I term the ‘Economic Modern Family,’ a conceptual framework encapsulating the quintessence of market oscillations.
At the vanguard of this economic ensemble is Granny Retail, a stalwart symbolising consumer-driven vitality. Unlike its peers, Granny Retail, alongside Sister Semiconductors, boasts a valuation surmounting the 50-week moving average, a testament to its robust health within the marketplace. This distinction sets them apart from their familial counterparts, who find themselves ensnared beneath this crucial benchmark, illustrating a nuanced spectrum of economic momentum. Notably, Biotech, despite its pioneering allure, languishes below both the 50 and 200-week moving averages, an emblem of the challenges faced by certain sectors in maintaining their market buoyancy.
A deep dive into the retail sector reveals a compelling story of resilience and potential. Despite the market’s vicissitudes, the sector’s zenith in 2021 at 104.31 underscores a narrative of unfulfilled potential. This pinnacle poses the question: what catalyst will catapult consumers into a spending frenzy, a renaissance of economic indulgence? The reality, however, is tinged with prudence – consumers continue to ply the waters of expenditure, albeit with a discerning eye. Within this milieu, the burgeoning ‘Vanity trade,’ spurred by innovative diet drugs, emerges as an intriguing subplot, hinting at nascent trends shaping consumer behavior.
Yet, this sector must now deftly navigate the treacherous waters of market dynamics, with $75 emerging as a critical juncture of support, paving the way for the next significant milestone around $80. Herein lies a caveat – the spectre of a bearish divergence in momentum, as revealed by the real motion indicator. This undercurrent warrants vigilant surveillance, for it holds the potential to unravel the sector’s ascendancy.
The narrative takes a compelling turn with the introduction of Granddad – the emblematic representation of small caps. Despite its valiant endeavours, Granddad’s journey is checkered with hurdles, notably its position below the 50-WMA, a shadow cast over its aspirations. The historical zenith of 244.98 achieved in 2024, juxtaposed against its near-miss in 2021, sketches a portrait of a sector tantalisingly close to breaking free from its constraints, yet imperilled by the spectre of a double top formation, awaiting the clarion call to transcend its limitations.
The saga of the Economic Modern Family would be incomplete without delving into the intricacies of the Transportation sector. Mirroring the trajectory of small caps, Transportation finds itself ensnared below the 50-WMA, its momentum marred by bearish divergences, and its performance trailing in the wake of the SPY. The sector’s arduous journey towards a semblance of recovery, embarking from a pivotal juncture of 67.30, encapsulates the broader narrative of resilience amidst tribulation.
In distilling the essence of these ‘inside’ sectors, several pivotal themes emerge. The retail sector’s buoyancy heralds positive economic sentiments, albeit confined to specific enclaves of activity. Conversely, small caps and Transportation reflect the broader economic uncertainties ranging from protectionist tariffs to geopolitical strife and fiscal profligacy, painting a picture of an economy poised on the cusp of transformation, yet ensnared by the shackles of its past.
Navigating this complexity requires a nuanced understanding, underscored by the ETF Summary, which delineates strategic waypoints across various sectors, from the S&P 500 to Bitcoin. These pivotal markers – whether signifying support or resistance – serve as the navigational beacons for discerning investors, guiding their journey through the tumultuous seas of the marketplace.
In essence, the unfolding narrative of the US economy, as captured through the lens of the Economic Modern Family, is one of juxtaposed realities – of resilience and vulnerability, of potential unbound and challenges unmet. It is a tale that continues to unfurl, week by week, whispering the ever-evolving story of an economy at the crossroads of its destiny.
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.
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. 
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.
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
