The following is just a small excerpt from my latest Weekly Strategy Session (please click on that hyperlink for details about trying it out). which I published for members and 12631 subscribers this past Sunday.
(This is a follow-up to a subsection from a Strategy Session earlier this month, titled: “Strong Energy is Not Always Positive Energy”)
The recent capital rotations into the energy and materials, not to mention the utilities and consumer staples, all seem to add credence to the bull argument of a healthy market intact, feeding off organic sector rotation.
On its face, the argument seems colorable, if not appealing.
But it fails to consider the history of markets.
Generally speaking, when the energy/material complex begins to assume leadership along with the defensive sectors, such as utilities and consumer staples, it is often after growth stocks have peaked for a particular cycle as the bull is quite long in the tooth.
In fact, energy stocks peaked several months, if not quarters, after the major indices had topped out in the 2000 and 2007 major market tops before vicious bear markets ensued.
Therefore, market players should not make the leap of faith and complacently assume that the impressive action in the energy/materials of late necessarily means that the health of the market, as a whole, remains intact, for that way of thinking would have seen you falling victim to the last two bear markets.
Instead, the action in the energy and materials should be viewed in a vacuum, on their own merits, fully acknowledging the potential for this to be the last good rotation of the current bull run before a deeper correction plays out.
On the monthly timeframes of both the energy and material sector ETF’s, note the recent breakout to new all-time highs. It is hard to argue with this type of price action on the merits. But, again, knowing your history of the bull cycle and its inevitable rotations is critical. In fact, as I argued last weekend, some of the notable standouts on the long side of late have been in the energy patch, with names such as CPE FANG FTK MTDR RRC TRGP flourishing.
With this in mind, a name in the materials space which continues to sport signs of potential major bottoming pattern is…
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