Lagging Segments of the Market Tell a Good Deal About the Economy

Below we see the Russell 2000 Index ETF (IWM; top chart); the raw materials ETF (XLB; second chart from top); the homebuilders ETF (XHB; second chart from bottom); and the regional banking ETF (KRE; bottom chart).

click images to enlarge

What do they have in common?

All failed to confirm the October price highs in the major large-cap indexes and now are falling back toward their September/October lows.

Whether those lows hold will tell us a good deal about the health of the overall market, as well as the economy. Weakness in raw materials, homebuilding, and regional banking suggests that some of the concerns from the financial crisis may not have been put behind us.

Comments

[cyclingscholar:]

Don't ignore IYT (transportation stocks) also failing to rally to new highs...this is as old as dow theory. If goods are being produced (SPY, etc) but not being shipped to market (IYT), then they are piling up in inventory and the economy will have to adjust on the downside sooner, rather than later.

Oct 27 10:28 AM

[HiSpeed:]

It seems to me that the market in general has merely become another commodity play on the US Dollar, much like the rest of commodities. When the Dollar weakens, we rally; and vice versa.

Oct 27 10:36 AM