It’s easy enough to spot sectors that are rising or falling.
That’s not what I want to do.
I’m looking for sectors and stocks about to make a sudden shift.
Shifts that create excellent opportunities for those willing to jump in.
This week, there are two diverging opportunities. One is a sector setting up for a positive shift, the energy sector (XLE). This one was a Tank It sector just a few weeks ago.
But now it is on the verge of a strong rally.
All I have to do is look at one chart to figure it out – the RRG.
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The RRG, or relative rotation graph as it is called, combines the two strongest trends in the market – relative strength and momentum.
Combining these make one heck of a quick glance chart that I’ve managed to tap into for some quick profits as well.
Take a look:
The XLE, sitting in bright green on the far left, is in the lagging quadrant. That is a bearish quadrant, but once a stock or sector turns higher, as it did last week, now we are watching for a bullish move.
That’s because the RRG tracks a natural rotation in the market where stocks move from lagging the market, to improving (top left), then leading (top right), before weakening (bottom right) and back to lagging (bottom left).
This clockwise rotation makes this a quick chart to view and understand what is moving where. And, if you are like me, you want to know where the biggest opportunities come.
That’s the turning points, like XLE. We are expecting XLE to have bullish momentum for the next couple of months.
The sector looking to drop, is everyone’s favorite – technology (XLK).
Technology is Set to Weaken
With this sector sitting on the far right side and the arrow pointing lower, we are expecting the tech sector to enter weakening any week now.
This is a swing, from leading towards lagging, that produces the steepest drops.
And XLK is at the starting point of that decline as we speak. It only lasts a few weeks, so two months max, but this trend can be powerful.
So to recap, XLE you can bank on going higher and XLK is set to tank and head lower.
Let’s get it!
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE