It is a well-known fact that late in a business cycle, one may start to see important divergences between different sectors of the stock market. More specifically, it is not unusual to see the Transport sector start to underperform the broader market in anticipation of a slowing overall economy.
So it is that we must point out the recent breakdown of the IYT (iShares Transportation Index ETF) versus the broader SPY (SPDR S&P 500 ETF). The Ratio of IYT/ SPY chart shown below has arguably made a huge “Head & Shoulders” topping formation on a monthly basis going back to Q4 2014, and recently broke the neckline of that formation.
The IYT ETF itself looks poised to move towards one of the two Fibonacci fractal targets depicted below.
Internal to the top holdings of the IYT, the rails have to date held up well, but shippers such as Fedex and UPS have been the biggest index component drags -- perhaps as Amazon tries to in-source delivery methodologies increasingly over time. It will be interesting to watch what may cause the IYT to continue to underperform the broader market going forward as both of the charts above clearly imply.
Published By: Barclay Leib, Senior Advisor, Cooper Family Office
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