A Needy Bull Market
A Needy Bull Market
We are still in a bull market.
The S&P 500 is in an uptrend.
The majority of stocks remain above their 200 day moving averages.
Still a Bull Market…But A Needy One….
But the character of this bull is changing….it’s getting needy.
Breadth has expanded, which is constructive.
The problem is the type of breadth expanding is not the type that typically drives markets to sustained new highs.
Leadership is softening, and the groups we want carrying the load are starting to stumble.
Leadership can take a breather but not breakdown….what was a want…is becoming a need.
Let’s get into it.
The Leadership Problem
One of the most important charts this week came from Warren Pies at 3Fourteen Research.
His work looks at 63 day sector leadership going back decades and measures how the S&P 500 performs depending on which sector is leading.
The takeaway is simple.
Credit – Warren Pies of 3Fourteen Research
When defensive groups like Consumer Staples, Utilities and Energy are leading, forward returns tend to be weak to outright negative.
When offensive sectors like Technology, Financials, and Consumer Discretionary are leading, forward returns are materially stronger.
Right now, leadership is skewing toward Energy and more defensive areas.
Twitter tweet
Participation is fine. But the wrong players have the ball.
A Bull market can tolerate temporary defensive leadership. It cannot thrive on it.
The Failed Breakouts That Matter
This week the tone shifted from sideways digestion to something more fragile.
We are seeing failed breakouts cluster in offensive sectors.
That is where this moves from a want to a need.
$XLF ( ▼ 0.08% ) – Financials
Financials attempted to break above the multi month range near the 55 area and failed.
Price has now slipped back below the 200 day moving average and RSI is struggling around 50.
Failed Breakout……
That is not what you want to see from a leadership group.
I do not care if Materials or Energy hold up.
Without Financials confirming, the bull market is on borrowed time.
Credit transmission, lending conditions, and risk appetite all flow through this group.
If Financials break….so does the Bull Market….
$XLC ( ▼ 0.05% ) – Communication Services
Communication Services also failed a breakout attempt near the 120 area.
Price is now pulling back toward the rising 200 day moving average near 111 to 112.
Failed Breakout……
This has been a core leadership area for much of the cycle.
Failed breakouts in former leaders are manageable if they resolve sideways and re-build structure.
They’re not manageable if they turn into lower highs and lower lows.
This week matters…..
$XLY ( ▲ 0.04% ) – Consumer Discretionary
Consumer Discretionary is printing the same story.
Failed Breakout…….
Repeated failures near the 120 to 122 zone. Momentum fading.
If Discretionary cannot regain momentum and instead loses trend support, that is a direct hit to the bull case.
This is a classic offensive sector. It needs to act like one.
My Two Cents
We are still in a bull market.
But it is becoming more needy.
If the starters do not get back on the field soon, this turns from healthy digestion into something more problematic.
Failed breakouts either repair quickly, or they become breakdowns.
The way they go….the market goes…
Anyway, that’s my two cents.
My Weekly Show – Thompson’s Two Cents
🚀 Throw it on 1.5x speed and let it rip.
👍 Give it a like. It’s the easiest way to show me some love.
FREE – The Sunday Stalk List | Ep. 35
If you want clean charts, clear setups, and tactical insights — this one’s for you.
It hits inboxes every Sunday so you know exactly what to keep an eye on for the week ahead.
Cheers,
Larry Thompson, CMT CPA
Sign Up For Thompson’s Two Cents
