We all know that the energy sector is troubled.  But a 13% year-to-date loss in the flagship XLE hasn’t derailed an overall bull market.

So far so good.  But two additional challenges have now entered our radar.  The financial and small-cap sectors are both staging potential distribution patterns.  See Charts 1 & 2 below.

A breakdown in these important sectors would be a sign of clear and present danger.  It’s hard to imagine the market shrugging off such a development.  These two sectors comprise about 20% of U.S. capitalization.  And mature bull markets can’t withstand too many bricks falling out of the wall.  So let’s keep an eye on these twin “canaries.”

Chart 1. Financial-sector sideways

Chart 2. Small-cap sideways