Stocks finally pulled back last week, but it wasn’t the most convincing reversal back lower. That said, I’ve been monitoring some of the emerging cracks in this rally over the past two weeks.
We have another leader that popped up last week that suggests upside momentum is running out of gas.
Does that mean it’s automatically time to bail on this rally? Far from that. It just means that the priorities in our approach to this market needs to be different.
Here’s what I mean…
Is Growth Accelerating, Or…?
Two weeks ago, the top-performing sector was basic materials (XLB). Last week, energy (XLE) emerged as the top-performer.
To be clear, this is not the type of short-term leadership we’d see if upside momentum was accelerating. But let’s take a step back for a moment and give credit where it’s due - bulls had an incredible run over the past three months - a little bit of rest is deserved.
Energy (XLE) is notorious for being a late-cycle outperformer. In other words, you don’t see energy lead when the rally is young and healthy.
The good news is that the rest of the leaderboard - tech, industrials, and financials - that’s all bullish. I would still maintain a “buy the dip” approach with these sectors firmly leading across longer-term timeframes.
But right now, book those profits, tighten those stops, and don’t run away from cash. It’s going to get better here, but perhaps the market wants a short summer break, too.
Talk soon,
-Gianni