One of the most important first steps towards trading success is to tilt your trading towards trending sectors that display strength and avoid market weakness.
One helpful tool to understand the underlying forces driving trends is Mish's Modern Economic Family, a simplified economic market model.
The Family comprises one broad market index and six sector-specific ETFs, each representing a different part of the economy.
What are the current developments in the Modern Family telling us, and what does this mean for investors?
The first takeaway is that the Modern Family has paused near critical support ahead of CPI today.
The Modern Family offers information on consumer spending patterns, housing, transportation, and biotechnology and tracks investment activity in specific industries.
Every member is under its 200-week moving average except KRE, and it has also not tested its recent lows. We should see more upside in the regional banking sector as rates rise.
Grandpa Russell (IWM) is beneath its 200-week moving average and currently testing recent lows from June.
XRT is also under the 200-WMA but making lower highs. 55 is ample support, and over 60 could see a nice consumption pop should TLTs, and high-yield bonds recover.
Alternatively, if XRT falls below 60, we may see more economic weakness.
IYT is under the 200-WMA and holding recent lows. Its long-term 6 to the 7-year business cycle is still in an uptrend.
Are we testing the low of a bullish business cycle or getting ready for a deeper recession? Watch 195 closely as resistance for guidance.
IBB had a death cross but is well above the June lows, while making a series of significant lower highs, through 120 could see a $10 rally.
Finally, SMH broke through its 200-week moving average last week and is still slipping. While there might be some headway for SMH should bond yields relax again, we could see a drop-down to 190 or even lower.
The "Modern Family" is often seen as a good indicator of the health of different sectors since its changing composition can offer valuable insight into shifts in consumer demand and workforce dynamics.
Overall, investors need to keep a close eye on technical indicators to navigate these risky waters in today's markets effectively. It is crucial to remain alert with a cautious trading mindset.
Whether you are just getting started with trading or are looking for advanced strategies to boost your portfolio returns, the Modern Family is an invaluable tool that will help take your trading to new heights.
ETF Summary
S&P 500 (SPY) 354 support and 360 resistance
Russell 2000 (IWM) 165 support and 171 resistance
Dow (DIA) 290 support and 296 resistance
Nasdaq (QQQ) 260 support and 265 resistance
KRE (Regional Banks) 58 is support and 61 resistance
SMH (Semiconductors) 174 support and 180 resistance
IYT (Transportation) 196 support and 203 resistance
IBB (Biotechnology) 116.59 is now support and 120 resistance
XRT (Retail) 57 is now support and 60 is resistance