September’s Surprising Sector Reversal Is Not a Market Top

Here’s to sounding like a broken record! But… when the broken record keeps churning out the profits, like it has, I’m all ears.

Of course, I’ve been saying that this market is going to continue going up – over and over again.

And I’ve been proven right; the charts don’t lie. In fact, this past Friday, the last trading day of September, we notched the 9th all-time closing high in the S&P 500. That means we will have set new all-time highs on more than 45% of the trading days this month!

But the way this has played out in September is even more impressive, and what it means for the month ahead is just as important.

That’s because the sectors that were the strongest in the first eight months of the year have fallen off this month – and yet the market has remained strong.

The bears are saying that’s an ominous sign, but it’s no such thing.

Let’s dig into this in a bit more detail with this chart…

The Surprising Sectors Wagging the Dog Right Now

Most of you who follow U.S. markets know that 2017 has been dominated by big tech with a resurgence in the healthcare sector. Utilities and materials have also been strong.

But in September, tech in general, and the FANGMA stocks – Facebook, Amazon, Netflix, Google (Alphabet), Microsoft, and Apple – in particular, stayed underwater.

Out of the six, only Netflix was in the green for the month of September until Alphabet popped during the last three trading days of the month.

But that’s not what’s so interesting about this.

D.R.’s spotted a market “hook” that could send stocks soaring soon. Click here…

You see, on the flip side, a transformation happened this past month for the worst-performing sectors. The four worst performers in Bloomberg‘s list of 11 sectors have been energy, telecom, consumer staples, and financials.

But in September, three of those four sectors had a turnaround. Let’s look at this interesting, if somewhat busy, chart:

There’s a lot of information here. The blue bars are 2017 sector returns through the end of August. And the red bars are September returns through 9/26.

You can see that the previously struggling energy and telecom sectors had a strong September, along with financials, materials, and industrials.

The former top performers – tech, healthcare, and utilities – struggled this month.

So what?

Well, under certain conditions where we see “rounded tops” and lower and lower highs, market leaders’ softening performance are typically a “look-out-below” moment.

Some people are already calling a “top” and counseling folks to get ready to sell.

This case is different, of course; the S&P 500 has posted 10 new all-time highs last month.

Despite what my bearish friends would have us believe, this is nothing but a bullish sign.

You see, when the market leaders falter and other sectors rotate to strongly advance and take their place, it doesn’t mean people are jumping out of the markets. They’re simply turning to other sectors.

Of course, continued weakness in tech, healthcare, and utilities would eventually pull the market down. And I’d be rethinking my approach to making money if we’d seen a rounded top last month.

But the fact that the first ding in this “strong sector armor” has been more than capably filled by other sectors means that the grinding bull is alive and well.

Lots of analysts would like to “call the top” of the market – especially this one!

I vote for letting the market tell us when it’s ready for a pullback. As long as we can’t break below even the closest and weakest support levels, why talk about anything else?

It’d just be a distraction from the business of making money…