REIT's VS U.S BANKS INDEX (DJUSBK)
--------------------------------------------------- NASDAQ VS U.S INSURANCE INDEX (DJUSIR)
NASDAQ VS U.S BANK INDEX (DJUSBK)
The divergence which is occurring within these charts point towards upcoming weakness that we will see within the broader markets. These charts illustrate that the banking sector acts as a leading indicator for the rest of the market.--------------------------------------
Sector Cycle Rotation Analysis
(Leading, Middle & Laggard Groups Determined by Martin Pring)
June 07, 2009
The liquidity driven industry group; namely home construction and telecommunications which have not completed a final leg down (Mar 9 double bottom), have lagged in the recent rebound instead of living up to their reputation as leaders. Most notable is the performance of the Dow Jones U.S Restaurants & Bars Index (DJUSRU) which has rebounded 40% from the November 08 low and is only 17% below its all time high. When compared to the performance of technology (touted by media as being the top investment) we find that the Dow Jones U.S Technology Index (DJUSTC) is up 50% from its November low but still 51% below its all time high. On the other hand, liquidity driven industries which have completed a final capitulation low yet still rebounded less than its group category peers include airlines and utilities.
The middle cycle groups which tend to have their best performance half way through a bull market move have had a stronger rebound than that of the envisioned "leaders". The middle category includes retailers, manufacturers, healthcare and consumer durables. Better yet is the performance of the usually "lagging leaders" which include technology, commodities and commodity related equities. Contrary to the conventional business cycle, these late cycle leaders actually began the broader market recovery. Unlike the "leaders" which are liquidity driven, these "laggards" are earnings driven. With that in mind, it can be concluded that the recovery thus far has been driven by earnings rather than additional liquidity. This rally should have considerable difficulty being sustained after the speculation surrounding P/E ratios subsides.
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