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To begin with, my apologies for everyone who has been ready for a Sector Highlight this week. I traveled again from the US on Monday, bought caught up in engaged on back-log stuff, and now it’s Friday already 🙁

A brand new SSL will likely be recorded and posted on Monday! Sorry for the delay.

However this is a fast tackle sector actions over the previous few days.

Each day Sector Rotation

The day by day RRG for this week reveals an obvious risk-off rotation with XLU, XLV, and XLP on robust RRG-Headings shifting into or towards the main quadrant.

On the alternative facet, it’s primarily XLK shifting into the lagging quadrant whereas XLY and XLE are nonetheless inside, main however rolling over and shedding relative momentum.

With the S&P 500 down virtually three %, it’s a dangerous week for the markets.

Trying on the day by day chart of SPY, I see two doable eventualities.

Accomplished Head & Shoulders High, or Market Discovering Assist?

The primary is a accomplished H&S (like) formation triggered yesterday when the neckline broke with a downward hole. Measuring the highest of the formation to the neckline and projecting that distance downward from the breaking degree places the goal for the sample round 405-410 in SPY.

Upside potential will likely be restricted to the extent of the neckline. Former assist returning as resistance and/or the hole space between 435 and 440.

The second situation may very well be that SPY is presently looking for assist on the degree of the August 2022 excessive, and presumably beginning to kind a brand new low towards that assist degree.

I’m leaning extra towards the second situation, the place SPY is looking for assist and presumably in search of renewed upside motion from present ranges. That is based totally on the sector rotation as it’s nonetheless taking part in out on the weekly RRG.

XLC, XLY, and XLK are nonetheless contained in the weakening quadrant and leveling off by way of relative momentum, doubtlessly setting the tails up for a rotation again up in the direction of main and resuming their relative uptrends towards SPY.

The defensive sectors, XLP, XLV, and XLU, are all contained in the enhancing quadrant, displaying brief tails and doubtlessly rolling over to begin shifting decrease, again in the direction of the lagging quadrant.

430 Holds The Key

In both case, the realm round 430 is essential for the event in SPY within the coming week(s). If it holds, the market can get extra constructive once more and search increased ranges.

A transparent break decrease will verify the primary (H&S) situation and its doable goal space and negate the second situation concurrently. From a sector rotation perspective, the strikes that I will likely be watching subsequent week are:

When the day by day tails for XLY, XLV, and XLP begin to roll over, and XLY, XLK, and XLC choose up energy once more, that might assist situation 2. This needs to be adopted by an additional rotation in the direction of the main quadrant on the weekly RRG for XLY, XLK, and XLC shortly after, and the defensive sectors rolling over whereas they’re nonetheless contained in the enhancing quadrant.

A continued energy for the group of defensive sectors within the coming week, presumably mixed with SPY difficult 430, will likely be seen as a really robust signal of situation one beginning to play out. Within the case of SPY breaking beneath 430, the primary significant assist degree is discovered just under 420 within the space of the Jan 2023 peak.

#StayAlert and have an awesome weekend, –Julius