Breaking News
Get 40% Off 0
👀 Reveal Warren Buffett's stock picks that are beating the S&P 500 by +174.3% Get 40% Off

The Reflation Trade May Be In Trouble

By Michael KramerMarket OverviewJun 04, 2021 17:50
au.investing.com/analysis/the-reflation-trade-may-be-in-trouble-200470259
The Reflation Trade May Be In Trouble
By Michael Kramer   |  Jun 04, 2021 17:50
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US500
-0.25%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DJI
-0.24%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
FDX
+1.16%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
UPS
-0.54%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
PHM
-0.47%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DJT
-0.61%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

This article was written exclusively for Investing.com

The housing and transportation indexes are at a critical point based on their technical trends. They could be signaling a significant reversal in the broader equity market is nearby. Both of these sectors hold vital roles for the reflation and recovery trade. The Dow Jones Transportation Average and the PHLX Housing Index substantially outpaced the S&P 500 off of the March 2020 lows. 

Now, the Dow Jones Transportation Average is very close to breaking a multi-month uptrend that could send the average lower by as much as 10%. Additionally, the PHLX Housing Index is now diverging from the S&P 500 in a meaningful way; the last time this happened was in 2018.

Dow Jones Transports

The Dow Jones Transportation Average has recently fallen below an uptrend that started in the spring of 2020. It makes this an essential level as it could signify a change in trend is occurring. If the average were to revert to the lower trend line, which started in April of 2020, it could result in the average dropping more than 9%.

DJT Daily
DJT Daily

Housing Index

Meanwhile the PHLX Housing Index is also testing a critical trendline as well. However, what is more concerning is that the Housing index has deviated from the S&P 500 in recent trading sessions. The HGX has already started showing signs of a trend change, with a lower high, while the S&P 500 has traded more flattish. The last time the two indexes went through a significant divergence occurred in the summer and fall of 2018. However, by the winter of 2018, the S&P 500 caught up with the housing index, with both falling dramatically, making the current divergence all the more important to watch. 

PHLX Housing Daily
PHLX Housing Daily

UPS

The weakness is easily observable in some of the major transportation and homebuilder stocks. United Parcel Service (NYSE:UPS), for example, has risen sharply since reporting quarterly results at the end of April. But more important here is that the shares have been clinging to support at $210 in recent weeks. However, should the equity dip below that price, it could sink all the way to $181 closing a gap created at the end of April.

UPS Daily
UPS Daily

FedEx 

FedEx (NYSE:FDX) is showing similar bearish trends after forming a rising wedge pattern. Additionally, the relative strength index is now trending lower, suggesting that bearish momentum has taken over the trading and that lower prices lie ahead. A break of the uptrend could send the shares lower towards $280. 

FedEx Daily
FedEx Daily

PulteGroup 

PulteGroup (NYSE:PHM) is another stock that appears to be struggling after breaking an uptrend that started in March. Currently, it has made a lower high and is on the cusp of making a lower low, a reversal of the uptrend of the past few months. Additionally, a decline below support at $55 would trigger further losses to around $50.35 in the weeks ahead. 

PHM Daily
PHM Daily

While these stocks and sectors are not all of the reflation trade, they certainly are a big part of it. Suppose they start to turn lower as the charts suggest. In that case, they could be foretelling further trouble for the overall health of the equity market and the other reflation sectors.  

It makes watching the two sectors and a few of the stocks all the more critical as they could be serving an early warning sign of what is to come from the broader equity market. 

The Reflation Trade May Be In Trouble
 

Related Articles

Chris Becker
28.02.24 Macro Afternoon By Chris Becker - Feb 28, 2024

Asian share markets are not moving with any vigor in today’s session with concern over the direction of bond markets and tonight’s upcoming US GDP print. The USD is gaining some...

The Reflation Trade May Be In Trouble

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email