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For the second week in a row, energy was the top-performing sector in the S&P 500. This is especially interesting because, given the strength of Friday’s rally, it looks like bears may be about to be squeezed again.

Whenever energy outperforms, it gives us a clue as to where we are in the market cycle. But the bigger question is whether inflationary pressures are rising… or if the latest pop in energy was a last-gasp rally before a bigger drop back down.

Let’s dive deeper into this tape for more clues about where the bull market stands… 

Energy Is a Late-Cycle Leader

I try to be intentional in all of my actions - not just in this trading business. The name of this newsletter - Sector Leader Bullseye - wasn't chosen at random. Whenever we see certain sectors out- or underperforming, it tells a much deeper story surrounding the state of the overall market.

For two weeks now, energy has been the leader on the one-week interval. Is inflation becoming a real threat? Or was the market simply telling us that stocks were about to bottom?

I’m currently in the second camp. You see, energy is notorious for leading against its peers in the very-late stages of a market cycle. In many cases, the indices are already falling once this outperformance begins.

The key for me now is to see another sector assume near-term leadership. I’m banking on semiconductors (tech) filling that role in the coming weeks. The fact that consumer discretionary (XLY) is the top performer over the past month still tells me we’re in a risk-on tape.

Remember: We let price guide our actions, not news, gossip, or hearsay. 

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