Two charts that are showing 'weakness and caution' in the US economy: Analyst

There are growing concerns about the U.S. economy slowing down. MarketGauge Partner Michele Schneider says there are a couple of charts that aren't "saying disaster, but it's saying weakness and caution." Watch the video above to find out what the charts are.

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Video transcript

JARED BLIKRE: Mitch, I know you're looking at XRT-- that's a retail ETF-- IYT as well, and then junk bonds. Just give us some idea. Call out tickers, and we want to know-- I'll put visually what you're saying, or at least I'll try to.

MICHELE SCHNEIDER: Well, we're not talking about three members of my economic modern family, Jared, right? So we had Grandpa is the Russell 2000 because it really represents the 2000 small cap stocks within the United States. So it's very US centric, which is why it's so important for it to hold up. And very often, it lags behind growth, especially over the last decade, but at some point, it can become an anchor.

And of course, Grandma, which is the retail sector, really represents the other side of the demand of the US economy because of consumers. And we've seen all of these big box stores, really, except for Walmart and Costco, having huge struggles and going down.

And then transportation, obviously, the strike would have some impact on it, but not too much. That also is reflecting now how demand is going down. And even though we've seen much lower prices in airfares coming into now, I think, obviously, we'll see airfares starting to go back up with oil prices. So all of this is not really saying disaster, but it's saying weakness and caution, especially if we're looking at these charts that are now breaking down under key moving averages, looking at XRT and IYT, is the small caps next, and then what does that mean.

- And so what does that mean? Like, what do the charts tell you, especially when you look at the fixed income? And you know, I know there's been strength in the dollar. Are you expecting to see that bullish kind of trend continue?

MICHELE SCHNEIDER: Well, as far as the dollars, I think, obviously, it's gotten up to where it is, but it's having a lot of trouble getting through 106. It's actually topping out here. So there's other pressures on the dollar as well. And so right now, I'm anticipating that we could see 104 before we see 106. I mean, that's just a guess at this point. We're smack dab in the middle of 105. And if you just took the opinion out and looked at the chart, it certainly looks like it may be consolidating to go higher.

The dollar, to me, isn't as big a factor. We're talking about risk, right? And junk bonds-- you would ask me about that before-- that's a really important indicator to look at for risk. Coming into today, we want to see junk bonds outperforming the long bonds, and we look at that through the TLT. And so far, they are.

So if we're looking at HYG, for example, you want to see it holding around these levels. Actually, the level is 7450. There's a trend line there from the lows. It's now under the moving averages, but it's been relatively risk-on. If that changes, then I think we'll see the whole market, given everything we just talked about, and the dollar may actually wind up rising in that scenario, go lower. This 440 level in the SPY or 4,400, if you will, could easily lead to 4,200.

JARED BLIKRE: Yeah, I love watching junk bonds as an indicator, potential bellwether there, as I know you do. Thank you for everything here, Michele Schneider, chief strategist at marketgauge.com.