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