CONSUMER STAPLES (XLP) BECOMES THE STRONGEST SECTORS ON THE WEEK -- UTILITIES (XLU) CONTINUE TO UNDER PERFORM -- COMPLIMENTING SECTOR PERF CHARTS WITH RELATIVE ROTATION GRAPHS -- THE ENERGY SECTOR MOVES INTO THE WEAKENING QUADRANT

CONSUMER STAPLES (XLP) BECOMES THE STRONGEST SECTOR OF THE WEEK... Since August 1, the Sector SPDR Consumer Staples (XLP) has really surged. It has become the top sector on the week. Notice the box in the bottom right of Chart 1 says 6 days.
On Chart 2, XLP is now one of the top 4 performing sectors over the last month( Bottom right box = 24), which means it is outperforming 5 of the other sectors.

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Chart 1

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Chart 2

UTILITIES (XLU) CONTINUE TO UNDER PERFORM... The Utilities sector (XLU) continues to underperform on a weekly basis as shown in Chart 2 above. It is one of the weakest sectors overall after shining for a few months back in the spring. The Industrial Sector SPDR (XLI) has also broken down.

COMPLIMENTING SECTOR PERF CHARTS WITH RELATIVE ROTATION GRAPHS... We can see the sector rotation history on the new Relative Rotation Graphs in Chart 3. We can see that the Consumer Staples Sector SPDR (XLP) and the Utilities Sector SPDR (XLU) have been weak for a while. After Friday's update, we should start to see some improvement. The trend is smoothed out and the RRG measures relative trends.

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Chart 3

THE ENERGY SECTOR MOVES INTO THE WEAKENING QUADRANT... With the Energy Sector SPDR (XLE) moving into the weakening quadrant as shown on Chart 4, how do we interpret the chart now? I spoke with Julius De Kempenaer (the Author of RRG) at the SCU 101 Class in Seattle this morning. When a sector is so far to the right on the scale the relative strength is big. This XLE may just cycle back up and stay on the far right side of the quadrant because of the strong relative strength. This has strong relative strength compared to the $SPX that institutions like. As long as the Sector is able to maintain relative strength on the weekly charts, the sector can remain bullish. Should it really start to underperform, it will start moving aggressively to the left like the Utilities (XLU) did. If it can maintain its relative strength, it could circle back up much like the Technology (XLK) did.

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Chart 4

XLY AND XLF ARE AT AN INFLECTION POINT... I have been talking about the Consumer Cyclicals Sector SPDR (XLY) and its importance in the summer season. It has recently moved up to "improving" as shown in Chart 4. This is very important in terms of technical information about the ongoing bull market. We are watching for this sector to move into the leading quadrant. If it is unable to, that would be indicative of wider problems for the economy. So far, it is looking bullish. Both the XLY and the XLF are in the improving quadrant but have not started to lead.

WILL THE GOLD STOCKS MOVE INTO THE LEADING QUADRANT?... The Industry Relative Rotation Graphs in Chart 5 are indicating that Gold and Silver Index ($XAU) has been improving and is now the industry group that looks to be moving into the leading quadrant. $XAU is an index of multiple gold mining stocks. Because the momentum is so high, there is a strong likelihood that $XAU will push into the leading quadrant. There are so many conflicting messages on gold here so the real trick will be the technical analysis. As an example, the Gold Tracking ETF (GLD) moved up today but in Canada where most of the gold miners are listed, only one or two of the stocks were on the ' Top Up' list. That is concerning if the mining stocks are not getting the bump too. I also worry about gold trying to accelerate into a rising US Dollar ($USD). If you have trouble seeing the ticker symbol, you can look at the industry list below the chart by clicking on Chart 5.

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Chart 5

We can see the strength on the chart of some other industry groups. I have manually deleted groups that were weakening so this is an optimized list. These groups that are accelerating can help point us to the next big thing in the market. The Automobile Industry ($DJUSAU) have recently moved into the green. Now we can watch to see if it can maintain momentum.

TLT MAKES A NEW 52 WEEK HIGH... The iShares Long Bond ETF (TLT) surged to a new high today. This continues to push to higher highs as investors continue to look for safety in this market pullback. Chart 6 shows the TLT strengthening on the SCTR ranking as well.

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Chart 6

Hopefully we'll see you at Chartcon 2014 in Seattle.It all starts tomorrow.
Good trading,
Greg Schnell, CMT