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The State of the Markets


Cyclical sectors are pointing to higher prices ahead.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

It appears that we are back into my early cyclicals leading the markets theme.  I haven't posted about this recently as we saw the late cyclicals lead early in the year, so that is where I was focused.  This is an odd rotation, but one that allows for bullish continuation for quite a while.  Let's look at each of the three and see how they shape up.

Transports (ETF: XTN) - Coming alive a bit today, but has failed to make a higher high since before the July/August swoon.  This area should make a new high fairly soon, probably in about 2 weeks or so.

Financials (ETF: XLF) - Leading like mad after the swoon.  Looks great, broke to new highs and is holding those highs nicely for sideways consolidation and basing.

And as a subset of XLF, look at the banks specifically.  Regional Banks (ETF: KBE) - Banks look to be setting up for a great setup with a cup and handle forming, allowing for a nice extension higher.

Retail (ETF: XRT) - Leading to new highs, a nice cup and handle again.  Additionally we see that it has effectively reset the bar for positive momentum with a 50/200 day moving average positive cross.

All of these (surprising to me) are showing we should have more continuation higher soon in the broader indexes after a bit more rest.   So I am positioned accordingly.  I am currently about 90% long with a beta of around 1.1.  I am actively researching and looking for good setups of laggards in these three sectors to allow for short term alpha "bursts" to be added to the portfolio.  These would be 3-4 week setups like the ZION setup I buzzed earlier. [subcription required]

Twitter: @twistedmarkets
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