Welcome to 2024!
While the market started out with a dud, I want to help set you up for success.
Today, we’ll be using my favorite tool to analyze the markets to see which sectors to Bank on going higher in 2024, and which ones are set to Tank.
Just as you are lining up your New Year’s Resolutions (hopefully you haven’t broke them already), this market is hinting at a weak year.
With the first day lower, it’s going to be a struggle for January going forward.
As the saying goes, “So goes January, so goes the rest of the year.”
So we’ll be keeping an eye on how the market recovers from this day one drop.
In the meantime, I have three sectors to Bank on in 2024, and two to Tank!
Let’s dive in…
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It’s All Relative
Some of you likely knew this already, but my favorite tool is the Relative Rotation Graph (RRG).
It’s become increasingly popular in my trading strategies and it remains so unique, that I believe the rest of the investment world have not caught up to its trading signals.
Below, you’ll see the latest RRG, using monthly time periods to give us a forecast for the rest of the year.
At the center of the RRG is the S&P 500. Then, we break it out by each sector of the S&P 500 to get a quick snap shot of the complete picture.
A few of these stand out, and possibly more from a trading perspective, but I am going to stick to my five to highlight.
Let’s start with our Bank It sectors.
Three Sectors to Bank On
I’m pulling three sectors from this graph to focus on in 2024.
The Real Estate ETF (XLRE), Financials (XLF) and Healthcare (XLV).
The Real Estate sector is the most clear-cut bullish trade for 2024. It’s way out to the left of the chart and heading higher in the lagging quadrant.
This is exactly what I like to see.
As this momentum builds, we are looking for the sector to finish the year in the leading quadrant, making strong moves higher until then.
The Financials sector had a quick turn up in December. That’s great to see and it has me jumping on the bandwagon, on a long-term time frame, to Bank on the financial sector from here.
And we have Healthcare. Healthcare stocks will remain volatile, but we are seeing the trend shift in the lagging quadrant. I expect it to continue to turn, which would set it up for a strong bullish run in 2024 if that is the case.
You could make an argument for Utilities (XLU) as well, but it hasn’t turned yet, and it would be piggy backing on a similar trend as Real Estate given its sensitivities to interest rates.
Now let’s look at our bearish sectors.
Two Sectors to Tank!
I’m sure you can see one right away, the Technology (XLK) sector. It’s way up in the leading quadrant, turning lower and has plenty of room to fall.
This sector was also the one hit the hardest to start off 2024, so it may be a sign of more struggles for this group of stocks going forward.
The other sector wasn’t as clear cut. The Industrials are heading lower, but given its tight radius to the center of the chart, I am ignoring that movement for now.
Instead, I’m going with the Energy sector as my second sector to Tank in 2024.
Energy has been extremely volatile, as the position on the graph demonstrates (due to it being so far away from the rest).
It’s also not in the leading quadrant and the arrow is not falling.
But it is way down deep in the weakening quadrant, and it could easily be six months to a year before the shift out of the lagging quadrant would begin.
So, due to the timing here, I like placing the Energy sector on my Tank It list for 2024.
I hope this helps you set things up going into the New Year.
Cheers to the New Year!
Regards,
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE