What signal is money flow across sectors sending, and what’s strange about it?
Let’s take a look at our nine Sector money flow model and hear the message from the market:
Here’s what we’re seeing in the nine line charts above:
It’s each of the nine AMEX Sector SPDRs (XLF Financials, XLU Utilities, etc) in a Relative Strength Line.
In other words, the chart is NOT the price, but the relative strength line to the S&P 500.
When the line chart is RISING, that means that the ETF is rising faster than – or stronger than – the S&P 500.
Similarly when the chart is FALLING, the ETF is falling faster than – or weaker than – the S&P 500.
The purpose is to go beyond the price and measure each ETF with the same metric – the S&P 500.
In a rising market, you’d expect to see the top three “bullish” or offensive sectors strong and that’s what you see…
Except for one. Notice how XLY Consumer Discretionary has been downtrending all of 2016 and the RS Line just hit a new low this January.
That’s not supposed to happen!
We’re seeing the three Bearish or Defensive groups – Staples, Health Care, and Utilities – all trend downward which is expected in a rising/bull market.
Everything is stable with the exception of Consumer Discretionary – be sure to keep an eye on stocks in this group.
We generally want to find strong stocks in strong trends in strong sectors – like Financials right now.
We want to avoid buying weak stocks in weak sectors like Health Care or Consumer Discretionary.
In fact, both Consumer Groups are “weak getting weaker” (XLP and XLY).
Continue monitoring the Relative Strength Lines in these sectors and what it suggests about the market – bullish at the moment.
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Corey Rosenbloom, CMT
Afraid to Trade.com
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