The sectors investors should focus on after Friday’s big blackout

On Friday, figures were reported showing that while the Fed continued to raise rates, inflation pushed higher again. This is worsening investor sentiment and heightening fears that a recession is imminent.

This was reflected as the major indexes tumbled. However, rising inflation, rising prices and continued economic difficulties are things we have been warning investors about for many months at this point.

This is linked to stagflation and explains why we have been keeping a close eye on commodities.

IYT-KRE-SMH-IWM Daily Charts

One of the economic family members that are very important to monitor demand is the iShares Transportation Average ETF (NYSE:). If economic growth continues to slow, watch the IYT to continue falling.

Although the IYT is supportive of its recent decline, it can easily collapse further.

Other weak members with the same pattern include the VanEck Semiconductor ETF (NASDAQ:) and the SPDR® S&P Regional Banking ETF (NYSE:).

Their nearby support levels should also be watched if the market is looking to continue Friday’s price action.

However, the iShares Russell 2000 ETF (NYSE:) as the grandfather of the family still has a small support buffer around $171.

This creates a tricky trading area for anyone who wants to seek an alternate market breakdown.

What we’re suggesting is that if you haven’t already taken a short position (taking a countertrend trade) and are considering doing so, you will need to pay attention to the current price zone that hasn’t completely broken down yet.

Support levels/areas can be seen as black lines in the charts above.

That said, with higher inflation, we can turn our attention to commodities. At the start of this year, commodities were at a 100-year low against stocks.

This suggests that a commodity-based super cycle is underway. Looking at the longer term weekly charts, let’s run through commodities, oil and precious metals.

Weekly charts for commodities, oil and precious metals
Weekly charts for commodities, oil and precious metals

The image above shows weekly charts for Invesco DB Agriculture Fund (NYSE:), United States Oil Fund (NYSE:), through iShares Silver Trust (NYSE:) and through (NYSE:).

They are all accompanied by their 50 (blue) and 200 (green) week moving averages.

With rising food prices, DBA has been able to maintain a steady upward trend. Plus, with prices and shipping still under pressure, as we can see on IYT, DBA has a lot more room to grow.

Note that DBA only recently entered a bullish phase when its 50-DMA cleared its 200-DMA in mid-2021.

With gasoline prices at record highs, the United States is only near its pre-pandemic peak. This shows that oil prices could continue to rise amid shortages and supply issues.

Moving on to precious metals, silver and gold experienced a period of stagnant growth. However, if fears of a recession continue to grow, both symbols should be on everyone’s watch list as they are currently undervalued relative to stocks.

Both are interesting if SLV can clear $22 and GLD holds its 50-DMA at $171.43. However, patience is key when looking for setups, especially for symbols that have been restricted like GLD and SLV.

Although these are weekly charts, they give an excellent perspective of the continuing trend and possible change as more and more traders realize that our economic situation has more challenges ahead.

Additionally, while we review the longer-term picture, we will continue to write and look for short-term trade setups as these key areas evolve.

  • () 390 next support area.
  • Russell 2000 (IWM) 171 next support area.
  • () 306 low to watch.
  • () 280 next low support.
  • KRE (Regional banks) 58 next level to watch for support.
  • SMH (Semiconductors) Support for 215 keys.
  • IYT (Transportation) Sitting at a pivot price level.
  • (Biotechnology) Next major support area 105.
  • (Detail) Watch to hold the current price zone as major support is far away at 58.
  • GLD (Gold) Must contain more than 174.
  • USO (oil) Tested and maintained its 10-DMA at 88.48.
  • DBA (Agriculture) 21.80 assistance area.