The only two sectors to close higher on Wednesday were in the defensive category, Consumer Staples (XLP) and Utilities (XLU).
We were already watching XLP as it established a short-term rising trend. What we aren't seeing is healthy participation...yet. We are seeing some expansion in stocks above their 20-/50-day EMAs, but the Silver Cross Index is stagnant and below its signal line. Still, we do see this as one bright spot to consider in the current market environment, if you want to be long.
XLU is experiencing a fresh bounce after losing ground out of the October top. In contrast, we have healthier participation as far as %Stocks > 20EMA. Yet the Silver Cross Index hasn't budged. This new rally did put price back above the 20-day EMA, and we see a PMO Surge above the signal line (bottom above the signal line). We like XLU's chances of continuing its current rally.
Conclusion: When defensive sectors lead the market, it is bearish overall or could get worse. Seeing these two sectors as bullish should give us pause.
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