Don't Ignore This Chart!

Looking Ahead To 2020 For Sector Leadership

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I remain quite bullish about 2020 prospects and one reason is the relative strength of our 5 aggressive sectors - technology (XLK), consumer discretionary (XLY), communication services (XLC), financials (XLF), and industrials (XLI). Wall Street has not positioned itself for anything other than a market advance ahead, so you should be positioned the same. One clue of an impending top is when we see an extended period of relative weakness in one or more aggressive sectors. Check out sector relative strength at the market top before our last bear market, which began in 2007:

The XLC wasn't shown separately through most of the above period, but check out the relative weakness of both financials (XLF) and consumer discretionary (XLY) AT THE MARKET TOP! GDP is made up of roughly 2/3 consumer spending. If the XLY:$SPX ratio is at a multi-year low at a market top, what is that telling us? And how about financials doing the same thing - moving to a relative multi-year low just as the S&P 500 sets a record high? Wall Street saw it coming and positioned itself out of harm's way long before you and I started feeling the pain. Wasn't the financial crisis in 2008? Why did we see relative weakness in the sector years before the actual crisis?

These bear markets aren't accidents. They don't just happen overnight like the media would like for you to believe. They take time to develop and if you watch your relative strength charts, you'll see it begin unfold before it actually happens.

So let's fast forward to 2019 as we prepare for 2020. How about we look at that same chart, shall we?

The XLF and XLI have struggled during periods of S&P 500 consolidation. But both are now moving up on a relative basis and arguments certainly could be made that Wall Street has begun favoring these two groups once again - similar to 2016 just before a massive rally.

I know this is only one chart, but if something bad lies ahead, no one has told Wall Street about it.

Speaking of 2020 and what lies ahead, I am proud to announce that EarningsBeats.com will host its first ever, Market Vision 2020 online conference. It'll be an all day event on Saturday, January 4, 2020 and we're in the midst of lining up an amazing list of speakers, all of whom are exceptional technicians. We'll begin announcing a series of updates about the event, including the speakers, but you'll need to be registered to the special "Market Vision 2020" newsletter to receive the updates. Registration is completely free and when pricing is announced, those who have registered for the newsletter will be entitled to a 10% discount. So it simply makes sense to register, then sit back and watch as an amazing conference will unfold before your very eyes! CLICK HERE to register for free for our updates!

Happy trading,

Tom Bowley, Chief Market Strategist, EarningsBeats.com


Tom Bowley
About the author: co-founded Invested Central in 2004 and served as the site's Chief Market Strategist for more than 10 years. Invested Central provides stock market education and guidance for those interested in making their own financial decisions. During his tenure at Invested Central, Tom co-hosted Market Open LIVE, a national radio broadcast that covered many of the largest markets across the U.S. In addition, he has spoken at various conferences throughout the United States and Canada and has taught thousands of traders across the globe how to trade equities more wisely with an emphasis on managing risk and intermarket relationships. Learn More
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