The Chart to Assist Navigate a Summer time Market High | The Aware Investor with David Keller, CMT

A radical evaluation of seasonal tendencies for the S&P 500 over the past 12 years gives two key takeaways: there’s often a serious market prime in the summertime, and there’s usually a serious market low within the fall. So, on prime of merely analyzing the chart of the S&P 500, what else can we do to anticipate and validate a possible market prime?

I’d recommend that sector rotation could possibly be key right here, as a result of the present uptrend is being pushed by a really small variety of sectors (really only one, to be utterly sincere). Any adjustment to that configuration would represent a “change of character” for this market, and most certainly coincide with the summer season market prime many predict.

Whereas the day by day chart of the S&P 500 seems pretty constant in 2024, other than a two-week drop in early April, we have now to keep in mind that this market had a really totally different complexion earlier than and after that market low. Earlier than the April pullback, this was a broad advance, with most sectors thriving because the “every thing rally” propelled the fairness benchmarks larger. In Could and June, and now into July, this has been extra of a slim rally, with a small variety of mega-cap progress shares thriving whereas most shares have struggled.

I like the simplicity of the RRG graph in visualizing the rotation of the 11 S&P 500 sectors. The weekly RRG exhibits that it is clearly been “the expertise present” for weeks, because the XLK is the one sector within the Main quadrant and shifting up and to the proper. Now, let’s take a deeper have a look at the relative efficiency of the S&P 500 sectors in three buckets: progress management, worth management, and defensive sectors.

Defensive sector efficiency is without doubt one of the seven objects on my Market High Guidelines. Wish to see the opposite six, and get assist navigating a possible summer season market prime? Take a look at our Market Misbehavior premium membership and use code STOCKCHARTS for 20% off your first 12 months!

Worth Sectors Thrived in Q1, Struggled in Q2

On this collection of charts, every line represents a easy ratio of the efficiency of 1 sector versus the S&P 500 index. If the road goes up, meaning the sector has been outperforming. If the road is trending decrease, meaning the sector underperformed throughout that interval.

We will see right here that the Industrial, Monetary, Supplies, and Power sectors have all underperformed the SPX because the April market low. Whereas these sectors all have been outperforming in Q1, all 4 of them are at or close to new relative lows as we enter Q3. Whereas the S&P 500 and Nasdaq have been pushing larger, these sectors haven’t been part of that success story!

Expertise is the Solely Sector with Robust Relative Energy

From mid-April to early July, solely one of many S&P 500 sectors has really managed to outperform the benchmark in a significant means, that being Expertise. Whereas the Client Discretionary sector has popped larger in current weeks pushed by AMZN and TSLA, and Communication Companies has mainly carried out according to the S&P 500, Expertise has had the strongest run of relative efficiency.

Given the dominance of the AI commerce in 2024, it is no shock how Expertise is evident outlier when it comes to relative efficiency. And if there’s one factor I’ve realized from a profession as a technical analyst, it is to stay with successful trades so long as they preserve successful!

Defensive Sectors Could Be the Most Necessary to Watch

In order that leaves us with three defensive sectors which do not have a tendency to draw flows until buyers are afraid to personal the rest. And all three have underperformed over the past 12 months, reinforcing the bullish sentiment nonetheless evident within the inventory market.

Utilities shares had a quick rally in April and Could, throughout a interval when most of their earnings calls have been centered on energy wants for synthetic intelligence. Nevertheless it did not take lengthy for that short-term section to finish, and Utilities as soon as once more lagged behind the most important fairness benchmarks.

This chart is one which I characteristic on my Market High Guidelines, as a result of enchancment within the relative power of defensive sectors means that institutional buyers are attempting to cover out throughout a interval of market uncertainty. And whereas these three sectors have sometimes outperformed throughout a bull market section, their relative strains often solely flip larger throughout a bear market setting.

For now, the sector relative charts inform the story of a slim market advance pushed by Expertise. I’d argue that this similar set of charts can inform you a lot of what that you must know to navigate a possible management rotation and even a possible market prime in the summertime months of 2024!

RR#6,

Dave

P.S. Able to improve your funding course of? Take a look at my free behavioral investing course!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary scenario, or with out consulting a monetary skilled.

The creator doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the creator and don’t in any means characterize the views or opinions of some other individual or entity.