With the market selling off into the close today, it’s too early to write my usual “best five sectors” article. The risk of ranking changes is too high. I will make sure that an update will be posted before the markets open on Monday.

Instead, I want to build on this week’s RRG video analysis, where I examined the current strength of commodities and looked at growth, value, and size rotation.

You can see that video here.

Rotation Signals Commodities Springing Back to Life!

The synopsis of that analysis? Large-cap growth stocks are once again the preferred segment of the market. This underscores what’s happening right now — when the market is under pressure, investors usually flock to large-cap stocks. They’re familiar and supposedly less risky.

Cap-weighted vs Equal weight Sectors

Let’s dive deeper by comparing cap-weighted sectors with their equal-weighted counterparts. The two RRGs above illustrate these relationships. At first glance, most tails move in similar directions, though not necessarily in the same areas or quadrants. However, two sectors stand out in terms of divergent behavior: Staples and Financials.

RSPS (equal-weight Staples) has a short, southward-pointing tail inside the improving quadrant. On the other hand, XLP (cap-weighted Staples) is in the lagging quadrant but is picking up steam. For Financials, RSPF (equal-weight) weakens with a negative heading, while XLF (cap-weighted) rotates back towards the leading quadrant.

Cap-weighted vs Equal weight sectors on RRG

To simplify this analysis, I’ve created an RRG directly comparing cap-weighted to equal-weighted ETFs. This makes the trends crystal clear — cap-weighted sectors (dominated by large caps) are mostly moving with positive headings on the left side of the graph, either lagging or improving.

As our inputs are already ratios, we only want to know if that ratio is improving or deteriorating, so we use $one as the benchmark.

The Exceptions

There are a few notable exceptions to this trend:

Consumer Discretionary: A long tail moving from leading into weakening indicating.

Communication Services: Inside the leading quadrant but rolling over.

Technology: Just moved from leading to weakening.

For all three sectors, the dominant position of the larger names (mega caps) is fading and sector breadth is expanding.

These exceptions are particularly interesting because they represent some of the largest sectors in the market.

Large Cap vs Small Cap

Large- vs Small-Cap comparison on RRG

A similar exercise comparing large-cap and small-cap sectors reinforces the overall trend—large caps are generally outperforming. This comparison is even clearer, as these are real market CAO comparisons. In the first comparison above, there is only a weighting difference; all the stocks in these sectors are the same.

In this comparison, the constituents for the sectors are not the same, and they show the true difference between large- and small-cap stocks.

The only sector where small caps are about to take over is in Consumer Discretionary where we see a tail moving from leading towards, and almost crossing over into, weakening.

This aligns with the risk-off sentiment we’re seeing in the broader market.

S&P 500 Chart Analysis

To summarize, let’s examine the SPY chart. After hovering around this level for a few days, the market has tried—and failed—to break above 610 decisively. Friday saw a big down day, closing below the rising support line. This suggests more weakness ahead and underscores the expectation that the S&P 500 needs time to digest within a trading range.

What does that range look like? In my opinion, we’re probably looking at a lower boundary between 580 and 585 and an upper boundary between 610 and 615. The weekly chart still shows an intact uptrend, but it’s clear we need some sideways or corrective price action to digest the gains of the last year (or year and a half, depending on where you anchor the rally’s start).

The Big Picture

All in all, the overall uptrend in the S&P 500 remains intact. However, we need a bit more sideways or corrective price action to digest recent gains. Large caps generally outperform, with some interesting exceptions in mega-cap-dominated sectors.

As always in markets, it’s all relative — and right now, the relative strength favors the big boys.

#StayAlert and have a great weekend. –Julius

The market declined heavily on Friday likely setting up for more downside ahead. We had already begun to notice that mega-cap stocks were beginning to weaken. You can see this on the relative strength line of the SPY versus equal-weight RSP. The relative strength line has been in decline. You’ll notice that when the mega-caps underperform, the market tends to as well.

A look at the Magnificent Seven ETF (MAGS) has been showing a declining trend all year long. We have flat bottoms and a declining tops trendline and that forms a bearish descending triangle. Not only is the chart pattern unfavorable, but so are the indicators. The RSI is now in negative territory and the Price Momentum Oscillator (PMO) has topped beneath its signal line. Stochastics also look terrible as they decline in negative territory below net neutral (50). Relative strength against the SPY is also in decline.

Conclusion: The market is already in decline and it doesn’t appear there will be any help by the mega-caps, particularly the Magnificent Seven which are in decline overall based on MAGS ETF. The market struggles when these big guys don’t perform so we have downside pressure to add to an already weak looking SPY.

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Technical Analysis is a windsock, not a crystal ball. –Carl Swenlin

(c) Copyright 2025 DecisionPoint.com

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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SCTR Ranking

Bear Market Rules

There’s been a lot of wild speculation surrounding gold’s bullish run. When you consider a gold investment, you’re likely to think of the more common factors that come into play: inflation, geopolitical uncertainty, and central bank demand. 

But there’s more to the mix now, especially in light of the Trump administration’s latest initiatives and policies. These new developments are spurring speculations that are likely to change the context surrounding how investors view gold. Here are a few key things to think about:

• Around 12.5 million ounces of gold have been imported into the US since last November.
• President Trump announced a possible audit of Fort Knox gold reserves which hasn’t been done since the early 1970s (is it all still there?).
• The US government’s gold valuations remain at an outdated $42.22 an ounce.

The big rumor (keyword: rumor) is that gold is due for a revaluation. Will Trump use the revaluation to boost the value of the Treasury’s holdings, possibly paying down the national debt? Will his administration attempt a partial return to the gold standard? Will the gold be used to counter China’s reported attempt at launching a gold-backed currency to challenge the US dollar? 

Whatever the case may be, a full revaluation is likely to drive bullish sentiment in gold, sending prices higher. If the government sells gold to weaken the dollar, you can expect some short-term price dips before a rebound. And if, by any chance, the Fort Knox audit reveals a shortfall, then that’s bad news for the economy and markets but good news for gold, which will likely send prices skyrocketing.

To get some near-term context, let’s see how gold has been performing over the last year relative to silver, commodities in general, and the S&P 500.  

FIGURE 1. PERFCHARTS OF GOLD, SILVER, COMMODITIES MARKETS, AND THE S&P 500. Gold and silver outperformed both the broader stock and commodities markets over the past year. Chart source: StockCharts.com. For educational purposes.

It turns out that both gold and silver have been outperforming the broader equities and commodities markets.

Let’s take a long-term view of gold. Below is a weekly chart. 

FIGURE 2. WEEKLY CHART OF GOLD FUTURES. There are no signs of topping yet, though its ascent has grown increasingly steep. Chart source: StockCharts.com. For educational purposes.

If volume precedes price, then accumulation, as shown by the Accumulation/Distribution Line (ADL) on the chart, has stayed well ahead of it for a little over three years. Momentum-wise, the Relative Strength Index (RSI) may be registering as “overbought” but the reliability of this indicator in the current environment is anyone’s guess.

Trump’s policy blitz is transforming the political and economic landscape, and it brings certain shocks that can make technical and fundamental analysis more fluid. For now, there are no clear signs of topping, which makes it difficult for anyone interested in finding an entry point. So, let’s zoom in on a daily chart.

FIGURE 3. DAILY CHART OF GOLD. There are still no signs of a top except for the declining buying pressure indicated by the Chaikin Money Flow indicator. Chart source: StockCharts.com. For educational purposes.

There are still no clear signs of near-term weakness, aside from a slight drop in buying pressure indicated by the Chaikin Money Flow (CMF). If gold pulls back, the $2,900 high will likely serve as the first support level. Additional support zones, marked by the magenta lines, align with key swing highs and lows based on the Zig Zag lines.

The final three levels define a broad trading range and coincide with the Volume by Price indicator, highlighting areas of concentrated trading activity where support is most likely to hold. If prices retreat, these levels will be crucial to watch for a potential rebound. So, right now, it’s a matter of waiting for a pullback.

Silver is another asset that has outperformed commodities and the broader market. Might the grey metal present a tradable opportunity? Below is a daily chart to consider.

FIGURE 4. DAILY CHART OF SILVER. The grey metal has room to run but watch your entry point. Chart source: StockCharts.com. For educational purposes.

The RSI indicates that silver has more upside to go before reaching an overbought level. Note the relative performance window that I plotted in a manner that replicates the well-known gold/silver ratio (lower panel) . 

Historically, this ratio has averaged around 65:1 since the 1970s, meaning it typically takes 65 ounces of silver to equal the value of one ounce of gold. Note that every time the ratio reaches the 90-line silver tends to rally. 

Silver is currently rallying, but is another entry point on the horizon? Possibly, but patience is key. This relative performance setup highlights the value of the gold/silver ratio in identifying potential silver entry points, whether for short-term trades or long-term positions.

At the Close

Monitor “spot” $GOLD and $SILVER by adding them to your ChartLists. However, you may be interested in entering trades using their ETF equivalents in GLD and SLV. The prices will differ from their spot price, but the chart patterns that define your entry will be highly correlated, given a few slight adjustments.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Disappointing guidance from Walmart (WMT) may have hurt the stock market on Thursday sending the broader indexes lower. But something is churning beneath the surface you don’t want to miss.

There’s a group of stocks that are showing signs of revival after a long period of going nowhere. The industry is close to your heart but the stocks that are gaining ground may surprise you.

Don’t Pass On the Chips

Semiconductor stocks have been on a long sideways trip since mid-October, but that may be coming to an end (see chart below). You can see the semis tried to break out of the sideways range but failed to stay above the range. You can thank DeepSeek for the late January gap down. SMH is now approaching the top of the range again and here’s what’s interesting— it’s not your NVIDIAs, Taiwan Semiconductors, or Broadcoms that are taking the lead in this industry group.

FIGURE 1. DAILY CHART OF THE VANECK VECTORS SEMICONDUCTOR ETF (SMH). Semiconductors have been in a long sideways move since early October 2024. They’ve moved above their trading range a few times but retreated to their sideways range. Chart source: StockCharts.com. For educational purposes.

Since mid-February, the VanEck Semiconductor ETF (SMH) has outperformed the Nasdaq Composite ($COMPQ) by a modest amount. This should be an alert that something is brewing beneath the surface and screams for a deeper dive.

A closer look at the five-day performance of the Semiconductor industry in the StockCharts MarketCarpets shows that the most heavily weighted stock, NVIDIA Corp. (NVDA), gained 6.84%. However, the top three stocks in terms of performance—Wolfspeed (WOLF), Adeia (ADEA), and Peraso (PRSO)—are less weighted stocks and not necessarily household semiconductor names. Seeing these stocks come out of their slump is encouraging. 

FIGURE 2. STOCKCHARTS MARKET CARPETS FOR SEMICONDUCTORS. Here, you see the five-day performance of the semiconductor stocks. The table on the right lists the stocks sorted by percentage gain. Image source: StockCharts.com. For educational purposes.

Wolfspeed In the Lead

Let’s look at WOLF’s daily chart. The stock has gained 45.53% in the last five trading days, broke above its 50-day simple moving average (SMA), and is above the upper Bollinger Band^®. Trading volume has picked up in the last four months. 

FIGURE 3. DAILY CHART OF WOLFSPEED. The stock price has broken above its 50-day SMA and upper Bollinger Band on higher-than-average volume. Chart source: StockCharts.com. For educational purposes.

The price action in WOLF isn’t flashing a buy signal. An uptrend needs to be established as does accumulation. Ideally, you want to see this stock trade above its 200-day SMA. This could take some time but if it does happen, I would add my decision indicators such as the StockCharts Technical Rank and relative strength index (RSI) to confirm the technical strength and momentum in the stock. Once these indicators signal an uptrend is in full swing, I wouldn’t hesitate to open a long position in WOLF.

Adeia Is a Close Second

ADEA, which gained 32.10% in the last five trading days, made a much more aggressive move. The stock price hit an all-time high, is trading well above its 50-day SMA, and volume spiked in the last two trading days. The price move had to do with Adeia’s strong Q4 earnings report.

FIGURE 4. DAILY CHART OF ADEA. The stock price gapped higher on a strong earnings report. A high SCTR score makes this an attractive stock to consider adding to your portfolio and the RSI shows strong momentum. Chart source: StockCharts.com. For educational purposes.

A SCTR score greater than 90 indicates the stock is technically strong and an RSI of 83.10 indicates the stock has momentum. However, given the parabolic move, the stock price is likely to pull back. I would consider the December 16 closing price of around $14.50 to be the first support level. It could break below this price and fade the gap. I’d monitor this chart closely for a “buy the dip” opportunity. A reversal after a pullback with follow-through to the upside would be an ideal entry point for ADEA. 

I didn’t find the PRSO chart interesting so will not add it to my StockCharts ChartLists. 

Chips Ahoy!

If WOLF and ADEA don’t meet your investing criteria, feel free to go through the table in the MarketCarpet and analyze more charts on the list. You’re bound to find stocks that are within your comfort zone. There’s no end to the number of stocks you can identify with the  MarketCarpet and other StockCharts tools.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

On Wednesday, the Federal Reserve released minutes from its January 28–29 meeting. There weren’t any surprises — the Fed wants to see inflation go lower before cutting interest rates again and would also like to see the impact of the new administration’s policies before making interest rate cut decisions. The takeaway: We won’t see rate cuts in the next Fed meeting.

The broader equity indexes rose after the Fed minutes were released, with the S&P 500 ($SPX) closing at a record high — that’s two consecutive record-high closes. The upside moves may not have been big spikes, but they were enough to show that investor sentiment is bullish and market breadth is improving. Bond prices also rose slightly. 

Sector Strength

The Bullish Percent Index, an amazing indicator that gives you an indication of the internal health of an index or sector, displayed significant gains for several indexes and sectors. The S&P Industrials Sector BPI ($BPINDY) and the S&P Technology Sector BPI ($BPINFO) gained over 5%, the S&P Healthcare Sector BPI ($BPHEAL) gained over 3.50%, and the Nasdaq 100 BPI ($BPNDX) gained almost 3%.

Let’s look at the charts of the Industrials BPI and Technology BPI. The chart of the Industrials BPI (see below) shows that it has just crossed over the 50 level, an indication the sector is gaining bullish strength. The daily chart of the Industrial Select Sector SPDR Fund (XLI), a proxy for the Industrial sector, is still trading sideways and its 50-day simple moving average (SMA) is still trending lower (see chart below). However, if the BPI of the sector rises higher, there could be an upside move in this sector. 

FIGURE 1. DAILY CHART OF THE S&P INDUSTRIALS SECTOR BPI AND INDUSTRIAL SELECT SECTOR SPDR ETF. The bullish move isn’t evident in the chart of XLI but if $BPINDY continues to rise, XLI could move toward its all-time high. Chart source: StockCharts.com. For educational purposes.

Shifting to the daily chart of $BPINFO, it’s clear that BPI is above 60, indicating bulls are in control in this sector. The Technology Select Sector SPDR ETF (XLK) is at its all-time high, which could be toppy. A break above this level would be bullish for the Tech sector. 

FIGURE 2. DAILY CHART OF $BPINFO. The Technology sector is more bullish than the Industrials, but it could be getting toppy. A break above prevailing levels could mean the Tech sector still has legs. Chart source: StockCharts.com. For educational purposes.

Market Participation

Overall, there looks to be broader participation in the stock market. The S&P 500 Equal Weighted Index ($SPXEW) is moving higher (see chart below) but is battling against a resistance level (green line). A break above its current level clears the path for the index to reach its 52-week high. 

FIGURE 3. DAILY CHART OF THE S&P 500 EQUAL WEIGHTED INDEX. The index is moving higher but has hit resistance. A break above this resistance level would confirm broader market participation. Chart source: StockCharts.com. For educational purposes.

Closing Position

Despite the uncertainty surrounding the stock market, the markets are leaning to the bullish side. We’re seeing upside movement in other asset classes besides the Mag 7 stocks. Monitor the BPI of various indexes and sectors. The simplest way is to follow these steps:

• Download the Essentials ChartPack.
• The US Sectors – Bullish Percent Indexes ChartList contains the BPI of all the sectors.
• The Market & Index Bullish Percent Indexes ChartList contains BPIs of various indexes.
• The US Industries – Bullish Percent Indexes ChartList contains charts of two indexes.
• You can modify these ChartLists by adding/deleting symbols.
• Monitor your ChartLists regularly.

I was taught that the most bullish thing the market can do is go up.  And while the major equity averages are yet again at or near all-time highs, there are three macro technical signals that I’ve found to be very common at major market tops.

And while the prevalence of these signals does not guarantee a top will occur in February 2025, it tells me that until these conditions change, that further upside could be limited from here.

The Magnificent 7 have transformed into the Meager 7. So which sectors or stocks might take the lead in 2025? Join me in our upcoming FREE webcast on Wednesday 2/26 at 1:00pm ET as we explore sector rotation trends, analyze growth vs. value dynamics, and spotlight stocks gaining momentum in Q1. Can’t make it live? No worries! Just register and I’ll send you the replay as soon as it’s ready. Sign up for Finding Value: The Great Rotation of 2025 today!

Let’s go through these signs of the bear, review recent examples, and discuss what we would need to see to reconfirm a new bull phase for stocks.

Bearish Momentum Divergences Suggest Bull Exhaustion

Our first common feature of bull market tops is a surplus of bearish momentum divergences.  When prices move higher on stronger momentum, the uptrend is in good shape.  But when prices push higher on weaker momentum readings, that suggests a dangerous situation where selling pressure is not yet being reflected in stock prices.

While I could share my chart of the S&P 500, or perhaps Alphabet (GOOGL) which featured a bearish momentum divergence going into its recent high, I’ll go with the daily chart of Synchrony Financial (SYF).  Here we can see a clear pattern of higher highs in price from November 2024 through February 2025.  But note how the RSI is sloping lower during this period?

When previous leadership names start to flash a pattern of weaker momentum, that illustrates how distribution is occurring which pushes an indicator like RSI lower even though the prices remain in an uptrend.  And while this does not necessarily mean a top is in place, it tells me that the current uptrend phase should be brought into question.

Breadth Indicators Have Not Confirmed Recent Highs

Healthy bull markets are marked by improvement in market breadth indicators, as more and more stocks participate in the upside.  In recent months, to the contrary, we have seen breadth indicators trending downward while the major averages are making new all-time highs.

Out of the breadth indicators I track on my Market Misbehavior LIVE ChartList, one of my favorites is the simple advance-decline line.  And whether we’re looking at the S&P 500 members, the entire New York Stock Exchange, or even mid caps or small caps, all of these advance-decline lines have been sloping down since November.

To be clear, a breakout in these cumulative advance-decline lines would display a very different picture, representing a broad advance and stronger breadth conditions.  But until and unless the A-D lines can propel above their Q4 2024 highs, this remains a market with meager breadth readings.

Dow Theory Non-Confirmation Suggests Limited Upside

Finally, we have an updated version of Charles Dow’s original work comparing different market indexes, a strategy now known as “Dow Theory”.  While Dow used the Dow Industrials and Dow Railroads, and though we could use the Dow Industrials and Dow Transports, I prefer to use an equal-weighted S&P 500 versus the equal-weighted Nasdaq 100.

The idea is that if both indexes are making new highs, then the bull market is confirmed.  If one is breaking out while the other is now, this represents a “bearish non-confirmation” and suggests limited upside unless that divergence is negated.

The equal-weighted Nasdaq 100 did make a new high in February, pushing above its early December peak.  The equal-weighted S&P 500, however, is still well below its own top from late November.  Similar to the advance-decline analysis above, if both ETFs finally confirm new highs, then that would suggest further upside for the major equity averages.  But for now, this non-confirmation has me questioning the sustainability of the current uptrend phase.

To be clear, my Market Trend Model is still bullish on all time frames, confirming that the primary trend remains positive for the S&P 500.  The only way to anticipate a potential top is to look for similar conditions experienced in previous major tops.  Based on the charts shared today, we may be nearing the exhaustion point of the current bull market phase.

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

Super Micro Computer, Inc. (SMCI) stock surged over 50% after reporting earnings last week. The top and bottom line results weren’t stellar. The guidance, however, was enough to fuel a buying frenzy, driving the stock’s rally to a 110% gain this month. But is it sustainable?  Once SMCI pulls back, does it have the technical strength and fundamental conditions to make it a favorable trade?

SMCI set its revenue guidance to $40 billion by 2026, an ambitious target. Many analysts are skeptical, with several maintaining their “underweight” rating. Investors, on the other hand, are jumping in regardless, betting on increased AI infrastructure spending, particularly among giants like Meta (META), Amazon (AMZN), Alphabet (GOOGL), and Microsoft (MSFT).

With bulls and bears divided, what do the technicals say? What entry points and targets might the price action give us, if any? 

Let’s get started. Below is a weekly chart detailing SMCI’s two-year price action.

FIGURE 1. WEEKLY CHART OF SMCI STOCK.  The stock saw an impressive rise followed by an equally strong fall. Can it sustain its recovery? Chart source: StockCharts.com. For educational purposes.

From May 2023 to March 2024, SMCI saw a jaw-dropping rally of 1,167% from around $10 a share to $120. But then, it all came to a screeching halt as financial and regulatory concerns — specifically allegations of accounting and transaction irregularities — sent the stock into a prolonged tailspin. Over nearly a year of selling pressure, SMCI plummeted, finally hitting rock bottom at $23 in November.

Since then, SMCI has been attempting to recover, twice testing and finally breaking above resistance at the $50 range (see the highlighted yellow range). Interestingly, despite its year-long plunge, it still outperformed its broader industry, represented by the Dow Jones US Computer Hardware Index ($DJUSCR), by $297%.

So, what does the situation look like up close, and might there be an entry point? Let’s now shift over to a daily chart.

FIGURE 2. DAILY CHART OF SMCI STOCK. The trend is shifting, so it’s important to watch the key levels and momentum shift via the full stochastic oscillator. Chart source: StockCharts.com. For educational purposes.

First, note how the StockCharts Technical Rank (SCTR) score jumped well above the bullish 70-line. The shift from extreme technical weakness to technical strength potentially foreshadows a bullish shift in the trend. But it depends on how price responds to a few key levels.

The price looks a bit overextended. While runaway gaps tend not to get filled immediately within a week after the move, there’s still the likelihood that a pullback may occur in the next few sessions. The Stochastic Oscillator is well above 80, signaling a potentially overbought condition, although both lines (%K and %D) have been known to occasionally hover in either extreme (above 80 and below 20) for a prolonged period. 

About the stochastic oscillator, note how it signaled the (overbought) limit of each major swing high during the downtrend. If SMCI’s trend shifts upward, you will use the oscillator to anticipate potential swing lows throughout the uptrend. 

Concerning the trend, look at the ZigZag line highlighting the stock’s major swing points. For the bullish reversal to evolve into a full-fledged uptrend, it should remain above the most recent swing low point (see blue dotted line) near $25.  Before that, however, SMCI may rebound at the recently breached resistance level (yellow line). If it drops below this level, the next potential support is around $37.50 (blue line), which has acted as both support and resistance from last September to this February.

At the Close

If you’re considering a position in SMCI, here are your next steps:

1. Add SMCI to your ChartLists.
2. Monitor price action if SMCI pulls back, paying close attention to how it reacts to the key levels mentioned above.

A bounce off support could indicate a favorable entry point. However, if the price falls below $25, the bullish outlook becomes uncertain. A drop below $17.50 would invalidate the bullish thesis entirely.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Shifting Sands in the Top Five

At the end of last week, there were some interesting shifts in sector positioning, though the composition of the top five remained unchanged. Let’s dive into the details and see what the Relative Rotation Graphs (RRGs) tell us about the current market dynamics.

At the close of trading on Valentine’s Day (February 14th), we saw a bit of a love-hate relationship playing out among the sectors. Here’s how they stacked up:

1. (3) Communication Services – (XLC)*
2. (1) Consumer Discretionary – (XLY)*
3. (2) Financials – (XLF)*
4. (5) Technology – (XLK)*
5. (4) Industrials – (XLI)*
6. (6) Utilities – (XLU)
7. (7) Consumer Staples – (XLP)
8. (9) Real Estate – (XLRE)*
9. (10) Energy – (XLE)*
10. (8) Health Care – (XLV)*
11. (11) Materials – (XLB)

Communication Services took the top spot from Consumer Discretionary, pushing that sector down to #2 and Financials down to #3. Technology and Industrials swapped places four and five.

We also saw some reshuffling in the bottom half of the ranking. Utilities (XLU) held steady, while Consumer Staples (XLP) maintained its #7 spot. Real Estate (XLRE) and Energy (XLE) each climbed a rung, landing at #8 and #9, respectively. Health Care (XLV) tumbled from #8 to #10, and Materials (XLB) remained firmly planted in the basement at #11.

Weekly RRG: A Familiar Picture

The weekly RRG paints a similar picture to last week, with a few notable developments:

Consumer Discretionary still has the highest reading but is heading south inside the leading quadrant. Communication Services is losing some momentum but maintaining its relative strength. Despite being in the weakening quadrant, Financials has hooked back up—a positive sign. Technology is almost stationary, teetering on the edge of improving and leading.

Perhaps the most intriguing action is happening in the lagging quadrant, where most tails hook up slightly. While not all have achieved a positive heading yet, it’s a sign of potential improvement on the horizon.

Health Care is the lone wolf in the improving quadrant, a positive development. However, its low reading on the JdK RS-Ratio scale suggests it still has some work.

Daily RRG: Tech’s Time to Shine?

Switching gears to the daily RRG, we get a clearer picture of why some sectors are jockeying for position:

Technology flexes muscles with a strong, long tail in the improving quadrant.

Consumer Discretionary is heading in the opposite direction, moving into lagging territory.

Communication Services is holding onto its relative strength despite losing some momentum.

Financials, Health Care, and Materials are all in the lagging quadrant with negative headings.

Utilities are showing apparent strength, moving into the leading quadrant with gusto.

Spotlight on the Top Five

Let’s get into the trenches and examine each of our top performers:

Communication Services (XLC)

XLC is fulfilling expectations by emerging from its flag consolidation pattern and moving towards new all-time highs. It is also enhancing its standing on price and relative charts, which are bullish indicators of the sector’s ongoing supremacy.

Consumer Discretionary (XLY)

XLY is indicating some concerning trends. It has established a possible double top, which will be validated if the price falls below $218, the low from five weeks ago. The relative strength line mirrors this formation, and the RRG lines are declining. Considering its earlier strength, a notable decline may take a while to materialize, but it is certainly one to monitor closely.

Financials (XLF)

Financials are holding their ground admirably. Last week saw a break above the previous high on a closing basis — something that didn’t happen in the two weeks prior. The raw RS line also pushes against (and possibly above) its previous high. If this improvement continues, expect Financials to maintain its top-five status.

Technology (XLK)

Tech is making a comeback, overtaking Industrials for the #4 spot. Price-wise, we’re still grappling with overhead resistance around $242, but we closed at the week’s high — a positive sign. The relative strength is moving higher off the lower boundary, and RRG lines continue to climb (with a slight dip in momentum). I’m keeping a close eye on that $242 level — a break above could signal the start of a new leg up for the sector.

Industrials (XLI)

Industrials are living up to our expectations as the weakest link in the top five. It’s dropped from #4 to #5, thanks to continued weakness in relative strength. The RRG lines point lower, suggesting it’s only a matter of time before XLI drops out of the top five. Price-wise, we’re still within the rising channel, but a lower high has formed — not a great sign. Support comes in around $134 (rising support line) and $132-130 (late December low). A break below these levels could trigger a more significant decline.

Portfolio Performance Update

Despite the changing conditions, our RRG portfolio remains robust. Since its inception, it has achieved a 4.88% gain, while the SPY benchmark has only increased by 4.29%, resulting in an outperformance of 59 basis points.

#StayAlert and enjoy your long weekend. –Julius

For us at EarningsBeats.com, earnings season is the time to do our research to uncover the best stocks to trade over the next 90 days, or earnings cycle. We do this in various ways. Our flagship ChartList is our Strong Earnings ChartList (SECL), which honestly is nothing more than a sophisticated WatchList that organizes annotated charts with key price/gap support levels, simply as a reminder throughout the next quarter as to where might be great entry points. These stocks typically have great price/volume combinations, excellent relative strength, and rising AD lines (accumulation/distribution lines).

Currently, we have 301 stocks on our SECL and all of our prior Model and Aggressive portfolio stocks have been on this ChartList. One of the keys is that SECL companies ALL have beaten Wall Street consensus estimates as to both revenues and earnings per share (EPS). It guarantees us an element of strong fundamentals and confirmed management execution, I believe necessary ingredients to long-term growth.

On Monday, we’ll be unveiling the 10 equal-weighted stocks in our Model and Aggressive Portfolios for the next 3 months. But before we announce those stocks, much analysis needs to be done. For purposes of this article, I’ll give you a couple names that I’m considering strongly for one of our portfolios, based upon their quarterly results and their technical outlook.

Samsara, Inc. (IOT)

There are plenty of stocks to choose from in software ($DJUSSW), so IOT may or may not make our final cut. However, the strength here, both absolute and relative, is apparent. We just saw both the absolute and relative price break out to all-time highs. So too did the AD line. The uptrend is alive and kicking, if not strengthening. IOT will be reporting its quarterly results on March 6th, which is only a couple weeks after our portfolio “draft”. Having earnings so close can be a really good thing or a really bad thing. Currently, IOT’s significant relative strength vs. software suggests to me that the most recent quarter has been a very strong one, which could propel IOT substantially higher very quickly when results are released, helping to lead a portfolio higher. But what if IOT misses its estimates or lowers future guidance? We have a history of holding our portfolio stocks for an entire 90-day period without stops. Of course, our EB members can decide on their own how to handle both gaps to the upside or to the downside as a result of quarterly results. But holding a stock for 90 days after lowering guidance can be dangerous.

For our next potential portfolio stock, how about a household name that consolidated for two years before breaking out, then pulled back to test that key support level?

Coca Cola Co. (KO)

Surprisingly, KO beat its most recent quarterly revenue consensus estimate by 8-9% and easily surpassed its EPS estimate as well. Could this be a steady influence for a portfolio for the next 90 days? Should we consider that KO’s best two-consecutive-calendar-month period over the last 20 years is March and April?

There’ll be a lot to think about over the next 24 hours as we prepare to release our portfolio selections. Can we repeat our stellar results of the last couple quarters? Check this out:

Model Portfolio:

For the period November 19 through Friday, February 14th’s close:

• Model Portfolio: +15.15%
• S&P 500: +3.34%

For the period August 19 through November 19:

• Model Portfolio: +20.89%
• S&P 500: +5.50%

Aggressive Portfolio:

For the period November 19 through Friday, February 14th’s close:

• Aggressive Portfolio: +9.37%
• S&P 500: +3.34%

For the period August 19 through November 19:

• Aggressive Portfolio: +25.75%
• S&P 500: +5.50%

This is unreal outperformance, especially when you consider that these are quarterly results! Any portfolio manage would love to beat the benchmark S&P 500 by 1 percentage point annually. Both our Model and Aggressive portfolios have beaten that benchmark by more than 25 percentage points over the past 6 months.

I showed our “since inception” Model Portfolio results vs. the S&P 500 in a graph in yesterday’s article, but it’s worth repeating:

That’s a lot of outperformance over the past 6+ years. And we’re going to try to do it again. We’re “drafting” the 10 equal-weighted stocks in our portfolios on Monday, February 17th at 5:30pm ET. This is a members-only event, but we do have a 30-day FREE trial for those interested in checking out our strategy. For more information about the event and membership, click HERE.

Happy trading!

Tom

It was another mildly bullish week as our major indices climbed very close to new, fresh all-time highs. We also saw a return to growth stocks as we approached breakout levels, which is a good signal as far as rally sustainability goes. Despite this, there remain reasons to be cautious and I’ll point out a couple of those reasons below.

Negative Divergences

The S&P 500 ($SPX) and NASDAQ 100 ($NDX) both seem to be losing bullish price momentum on their respective weekly charts, which can be seen below:

$SPX

$NDX

The price momentum on both indices is slowing and eerily similar to late 2021, just before the cyclical bear market of 2022. Let me be clear that I do NOT believe we’re heading into a cyclical bear market. I don’t see that extent of potential weakness ahead. I do see increased risks of a 5-10% drop, however, and that’s why I’m cautious.

Is This Current Rally Truly Sustainable?

Sometimes a little common sense and perspective goes a very long way. Over the last 75 years, the S&P 500 has averaged gaining 9% per year. So when you go through short-term periods that show gains well in excess of that 9% average, you should at least be thinking there’s the risk that the S&P 500 will fall back and “reversion to the mean”, which is a mathematical concept that describes the tendency of extreme results to move closer to the average. We’ve seen a tremendous rally since the summer correction of 2023. Let’s look at the last 68 weeks (since the correction low in late-October 2023) of return on both the S&P 500 and NASDAQ 100 and compare it to the history of 68-week rates of change (ROC) to gain a sense of this current rally and its sustainability:

$SPX

$NDX

You can look at these two charts and make your own judgement and draw your own conclusions, but, outside of the late-1990s, 68-week ROCs above 50% on the S&P 500 and 60% on the NASDAQ 100 suggest a short-term pullback is more likely, not guaranteed.

Now The Good News

While bullish price action and momentum may seem to be slowing, the long-term monthly PPO on both of these indices is definitely on the rise, which, in my view, limits any short-term downside to the 20-month EMA. I’ll just show the S&P 500 monthly chart, but this will highlight the likelihood that any future selling, if it occurs (no guarantee), holds 20-month EMA support:

$SPX

This chart takes us back 25 years to the turn of the century. The yellow areas highlight poor (below zero) or declining PPOs. During these periods, I’d ignore 20-month EMA support and be cautious. However, the blank periods highlight a rising monthly PPO, during which we rarely see price fall below the rising 20-month EMA. This is where we currently stand. Most pullbacks over the last 25 years, when the monthly PPO is above zero and rising, have fallen short of actual 20-month EMA tests. In other words, we should view a 20-month EMA test as a “worst case” scenario.

The next market decline should be viewed as an OUTSTANDING opportunity to enter this secular bull market.

Stick With Strength

Since we began rolling out our Portfolios quarterly, we’ve had to overcome cyclical bear markets in Q4 2018 (trade war), March 2020 (pandemic), and the first 9-10 months of 2022 (rising inflation and rising interest rates), and a 3-month correction during the summer of 2023. We’re remained fully invested and have CRUSHED the S&P 500. In fact, below is a graph that highlights our Model Portfolio performance since its inception in November 2018 (in the middle of the trade war!) through the end of January 2025:

We’ve demonstrated the best way to beat the S&P 500, which is to invest in leading relative strength stocks. It’s the only proven method that’s worked for us at EarningsBeats.com. We “draft” our 10 favorite relative strength stocks in various sectors and industry groups and hold them for one entire earnings cycle, then rinse and repeat. Our last quarter’s “draft” picks have annihilated the S&P 500, +15.15% vs. 3.34%.

You can check out our Model Portfolio holdings for the last 3 months below:

8 of our 10 Model Portfolio stocks outperformed the S&P 500, a few by a very wide margin. Owning relative strength stocks like PLTR, CLS, and TPR will completely carry a portfolio and lead to outstanding returns.

Our “quarterly” results are calculated over the following periods:

• February 19 – May 19
• May 19 – August 19
• August 19 – November 19
• November 19 – February 19

The reason we calculate our quarterly returns using the above time periods is that we select our stocks each quarter on February 19, May 19, August 19, and November 19. By the time we reach these dates, most key market-moving companies have reported their quarterly results and fundamental data like earnings is factored into our portfolio selections just as much as technical considerations. That fundamental/technical combination is one factor that separates us from others and we do this because my background is public accounting. I don’t stray far from my core beliefs. I believe management’s execution of their business strategies/plan and beating revenue and EPS estimates is a huge component of its stock’s upside potential.

On Monday, February 17th, we’re holding our next DRAFT. We will be announcing the 10-equal weighted stocks in each of our portfolios designed to beat the S&P 500 over the next 3-month period. You’re quite welcome to join us. It might change your way of investing and improve your results immediately. CLICK HERE for more information and to register!

Happy trading!

Tom