Caution: These Two Key Market Leaders May Be Topping

I am a big believer in following market leaders for both investment prospects and indicators. As investments, they can bring big profits. And as indicators, they can help us protect against losses. For example, when market leaders start to lag, they can have a big effect on the performance of the broader markets. Recently, we’ve seen this show up in the Biotech sector (U.S. equities leader) and are on watch of the German DAX (Global equities leader).

The chart below illustrates the hottest sector and the hottest key global stock index vs. the S&P 500 and . Over the past year, the Biotech ETF (XBI) is up almost 5 times that of the S&P 500. And the German DAX is up nearly twice as much.

market leaders one year performance returns chart_biotech sector xbi_german dax


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But we cannot stop at just one performance metric/chart – we need more perspective. So let’s check out how these two market leaders are doing now?

The 2-pack below looks at the price patterns in the German DAX stock market and the Biotech ETF (XBI)

market leaders topping_german dax_xbi biotech chart

So what do these to hot money plays have in common? Both have seen strong rallies over the past year that took them to a key price resistance level at the top of their respective rising channels. And, more importantly, both look to have created reversal patterns (bearish wicks) at point (1) on the charts. Both are also hovering above rising support at point (2).

As I shared at the beginning of this post, I humbly feel that market leadership is critical to a healthy market. Investors may benefit from keeping an eye on these two for continued weakness because selling pressure in market leaders can spill over into lagging areas quickly! Thanks for reading.

     Follow Chris on Twitter:  @KimbleCharting

Author does not have a position in any mentioned securities at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.