This Winning Sector is Holding Back Stocks

Hey trader,

Energy leadership took the long weekend off with the rest of us. It clocked back in first thing this week and picked up right where it left off, sitting at the top of the leaderboard.

Bulls should be uncomfortable with that. Energy leadership

XLE is leading over one week, thirty days, year to date, and one year, which is a clean sweep of every timeframe that matters.

Sweeps like that have a track record. The track record isn’t kind to anyone holding growth.

Meanwhile, the Nasdaq put in a strong week and got almost nothing from market internals to back it up.

Price has run out ahead of participation, and that gap always gets closed eventually.

Over the next few minutes, I’ll show you why energy leadership is a late-cycle tell.

There are four catalysts landing between Wednesday and next Wednesday that could flip this tape.

We’ll look at those and the exact rotation I need to see before I add long exposure.

Bulls Are Losing the Plot

I’ll be level with you. This isn’t the type of leadership bulls want to see.

Energy is running the table across every single timeframe on the board. A clean sweep like that typically signals the market is in the later stages of its cycle.

The reason is mechanical.

Energy sits on the cost side of almost every other business in the index.

When crude leads for a week, that’s a trade. When crude leads for a year, that’s a margin problem working its way through earnings.

History has a habit of repeating this pattern. Energy was the top performing sector in the S&P 500 in 2007, and again in 2022. Neither of those years turned out to be comfortable for anyone holding growth.

That’s the bearish read, and it deserves respect. I’m not going to pretend the tape is clean when it isn’t.

Of course, there are various cycles to consider. The evidence favors that another one was reset last week.

If that reset takes hold, I’d look for a growth sector to resume leadership at the one-week interval. Tech, communications, and consumer discretionary are the three candidates worth watching.

Depending on how strong that rotation is, it may even flip the 30-day or 1-year spot over the following weeks. That’s the confirmation bulls need, and it’s measurable rather than emotional.

Four Catalysts Sitting Right in Front of Us

Crude oil is pressing into resistance as we speak. That’s the pivot everything else hangs on this week.

We’ve seen TACO-like setups coming out of long weekends before, so I’m not treating the first move as the real one.

Four things land between now and next week’s close:

• The Treasury bond buyback program starts on Wednesday, which puts a bid under the long end at a moment when rates are dictating sector leadership.
• Inflation data comes out on Friday. A cool print takes pressure off crude and off the front end of the curve at the same time.
• The next Fed rate decision comes a week from tomorrow. Positioning ahead of it tends to compress volatility, then release it violently.
• The Bank of Japan looks active again in the forex market, which matters more than most traders realize.

There’s plenty of doom and gloom out there about the carry trade unwind. That intervention may be what’s actually keeping this market alive in the near-term.

In other words, there are numerous catalysts for a complete script flip in the coming days. That cuts both directions, and I’d rather be prepared for both than married to one.

What I’m Doing Until It Confirms

Positions matter more than opinions, so here’s mine.

I’m keeping my core long exposure intact, because the intermediate-term trend hasn’t broken. I’m not adding aggressively into an unconfirmed breakout either.

Perma-bears have been calling this one for months on end. They’ll eventually be right for a week, and wrong about the decade.

Drawdowns are normal and healthy. A pullback that resets energy leadership and hands the baton back to growth would be one of the more constructive things that could happen right now.

Trinity Terminal is watching the same rotation from the other side. When crude cracks resistance and rolls, the setups it flags in tech and discretionary are where I’ll be putting fresh capital to work.

All that’s needed for bulls to resume leadership is for energy to come back down into orbit. This week gives us the catalysts to find out.

Here’s the part that separates traders who profit from a rotation like this from traders who read about it afterward. You have to already know which names are set up before the rotation starts.

That’s the whole reason Trinity Terminal exists. It scans for the setups building underneath the surface, so when crude cracks resistance and capital rushes back into tech and discretionary, I’m not hunting for entries. I already have my list.

Inside Trinity Trades, you get that list with me.

• Every setup the Terminal flags, along with my read on which ones are worth real size and which ones I’m passing on.
• The levels I’m watching in real time on crude, rates, and the growth sectors that hinge on both.
• The trades I’m actually taking, including how I’m structuring them and where I’m wrong.
• Live sessions where I walk through the tape with you, so you learn the framework instead of just copying tickets.

Positions matter more than opinions. That’s the standard I hold myself to, and it’s the standard Trinity Trades runs on.

This week has a Treasury buyback, an inflation print, and a Fed decision stacked back-to-back. The next few sessions are going to hand somebody a very good entry.

Make sure it’s you.

Join The Trinity Trade

Take Care,
Gianni Di Poce