Even with the cream-of-the-crop transports in the top three holdings comprising almost 30% of this index, IYF has had a sharp decline over the past month.
From the October lows, IYT has generally kept pace with the Dow Jones Industrial Average. As the Dow has drifted higher, IYT has created a disconcerting negative divergence. From a technical standpoint, IYT has developed an ascending wedge, considered to be a bearish pattern. Breaking the lower trend line with high volume selling confirmed a breakdown in the transports.
Currently, the 50 day moving average appears to be holding as support. The Money Flow Index and Stochastics look to have bottomed and turned. However, this is not confirmed by the slower Relative Strength Index and MACD. The +/- Directional Index shows the bears are clearly in control. Should the 50 day moving average support fail, the 200 day moving average doesn't show much of a support level and we could see price dropping to the longer term price support at $85.00.
A buy at $85.00 on IYT could be profitable if we see real economic recovery. But more than a buy/sell recommendation, IYT can give us some insight into the general health of the economy and the overall market, especially the Dow Jones Industrial Average. Watch IYT for the truth of economic recovery.
Disclosure: At the time I writing, I have no position in IYT.
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