Historically, investors gravitate toward more defensive and commodity-focused sectors, such as precious metals, energy, commodities, and utilities, in late-cycle bull markets.
Recently, the stock market is beginning to show us signs that the bull market may be coming to an end. Commodities such as energy, grains, and precious metals have all experienced nice rallies. Price action also confirms money flow coming out of transports and into utilities.
SPY – SPDR S&P 500 ETF TRUST – DAILY COMPARISON CHART
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As we review our cycle chart, please note the specific placement of the Transportation, Precious Metal, Energy, and Utilities sectors.
We especially want to focus on the Transportation sector depreciating while the Utility sector appreciates.
These sectors provide us with important clues as to where we are in the current economic cycle.
UTILITIES SECTOR UP +7.50% YTD
In March 2022, the Dow Jones Utility Average crossed 1,000 for the first time in its nearly 100-year history as the utility sector is significantly outperforming the market this year.
Many investors believe that the XLU is the most effective risk-reducing equity ETF available and may be looking to the utility sector as a safe-haven play.
Other safe-haven markets that we are following closely are Gold, the U.S. dollar, and the Switzerland franc.
XLU – SPDR SELECT SECTOR ETF UTILITIES– DAILY CHART
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TRANSPORTATION SECTOR DOWN -15.92% YTD
The transportation sector has dropped approximately -21.59% from its peak in November 2021. Market cycles are measured from peak to trough. Generally, traders consider a stock index in a bear market when its closing price drops at least 20% from its peak. The move in the XLU from 100.00 to 80.00 also represents a drop of 33.33% of the total 2020-21 bull market move.
On April 1st, the U.S. Department of Labor reported that the number of truck transportation jobs fell in March after 21 consecutive monthly gains. Then on April 8th, Bank of America (NYSE: BAC) downgraded multiple transportation stocks, citing “waving demand and price dives.” Bank of America analyst Ken Hoexter told clients, “Given deteriorating demand outlooks and rapidly falling freight rates, we downgrade ratings on 9 of the 28 stocks in our coverage universe”.
The transportation index was created in July 1884 by Charles Dow and has long been viewed as a leading indicator of the broad market’s direction because economic demand shows up first in shipping orders. Historically, a down-turn in freight indicates a potential broad economic recession.
XTN – SPDR S&P TRANSPORTATION ETF – DAILY CHART
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KNOWLEDGE, WISDOM, AND APPLICATION ARE NEEDED
It is important to understand that we are not saying the market has topped and is headed lower. This article is to shed light on some interesting analyses of which you should be aware. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers, and in the last six trades we entered this month, five have been closed at a profit, one remains open, and we have locked in partial profits on that one as well! Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.
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Successfully trading is not limited to when to buy or sell stocks or commodities. Money and risk management play a critical role in becoming a consistently profitable trader. Correct position sizing utilizing stop-loss orders helps preserve your investment capital and allows traders to manage their portfolios according to their desired risk parameters. Additionally, scaling out of positions by taking profits and moving stop-loss orders to breakeven can complement ones’ success.
WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS?
Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.
Historically, bonds have served as one of these safe-havens, but that is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there and how can they be deployed in a bond replacement strategy?
We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com
Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com
