TheoTrade’s Tale of the Tape: Energy Leads, but Is the Market Truly Bottoming?

A late-day rally on Friday saved stocks from a very nasty close on the week, but after surfing the charting landscape over the weekend, I’m not surprised to see this squeeze playing out to start the week.

The billion-dollar question, of course, is whether this is another bear market rally or the start of something that could stick.

To help answer this question, we defer to the market’s internals, and specifically, at the sector level.

So, are we seeing the right strength from the right places, or are the bulls being set up for more disappointment? Let’s discuss

Still Missing the Right Leaders

Just as a quick review, there are certain sectors we see outperform when the market is bottoming, and there are certain sectors we see outperform when the market is topping.

As you can see, energy (XLE) has really decided to make its presence known over the past few weeks here, and has captured the leadership position on a weekly, monthly, and year-to-date basis.

Energy’s outperformance is usually a late-cycle indicator. In other words, it’s a sector that usually does best when stocks are declining into a low, versus coming out of a low. 

That said, if we start seeing tech or even semiconductors make some strides, and at least capture the 1-week leadership position this week, I would be open-minded to the idea that we’ve bottomed. In the meantime, I still am going to be cautious in this tape, despite picking up a couple of new long positions last week.

As always, I’ll keep you posted,

-Gianni