We are at a crucial pivot point for the market.
I’ve talked about it some, since the downtrend from 2022 was broke.
But this week is the one to watch.
This market can still break either way.
And it gives us six sectors that we can trade through the coming weeks.
Three are set to continue climbing, while two you can expect to dive.
It’s all based on my Slingshot strategy from the Relative Rotation Graph (RRG).
To learn more about this approach, you can watch a brief video here.
This concept is telling me something that occurs routinely in the market – a shift from risk off, to risk on stocks.
You can even feel that sentiment shift in 2023.
That, we are moving from fear, to investors getting somewhat greedy again.
I think this is the last big push for the market, before a sharp dive, but I’m here to trade it both ways as long as the rally is taking place.
Here’s the latest setup for the S&P 500:
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The red line and dark green line represent the 2022 downtrend. It was clear as day when that was broken in 2023.
We even got a classic retest recently, and now a rally out of it.
This rally could lead to another short-term bounce, but I’m not counting on it to get past the high for 2023.
I think that was it – the high for the year.
But we could test it.
That’s the pivot point we are in.
I’m watching the bright green line as this is the new established trend that would need to hold to keep stocks elevated. At least until we hit new highs for 2023.
That’s what I believe.
And until then, I’m trading both sides of this market. The choppiness and volatility remains elevated even as the VIX, a key indicated for volatility, slips under 20.
All it takes is one volatile day to get it back above 20, which is an elevated level.
I wasn’t lying when I said my Slingshot approach is my number one strategy. It’s why I turn to it frequently now.
As I pull up the latest RRG, six sectors stand out – XLP, XLU, XLF, XLK, XLY and XLRE.
If you know how this works, you can already guess which ones I expect to thrive and which ones are diving.
But, the quick picture of this is a clockwise rotation around the center, which represents the S&P 500. Top right is leading, bottom right is weakening, bottom left is lagging and top left is improving.
So sectors, and stocks as well, have a natural rotation around the S&P 500 from leading the market, to weakening, then lagging before improving and eventually leading the market again.
Full rotations take just 10 to 20 data points, whether it is on a daily, weekly or monthly basis.
And right now, real estate, technology and consumer discretionary are expected to make a bullish turn.
Real estate is further ahead and will pullback sooner, which still lines up with a shift from risk off stocks to risk on.
Because the three sectors at the best point to dive, are utilities, consumer staples and financials – three plays considered risk off for the most part.
That’s the key sectors I’ll be watching for a few weeks and how I’m trading them.
If you want more insights, then join me with my Bank It or Tank It ELITE research service. In it, you’ll receive my number one trade every single week. And right now, it’s focused on this Slingshot strategy.
Regards,
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE