We discussed technical analysis a bit in class today along with sector rotations. When the economy is slowing, you will observe a rotation from sectors that do well with a strong economy (like cyclicals ($CYC) and discretionary spending (XLY)) toward more defensive sectors like consumer staples (XLP), telecommunications (IYZ), and public utilities (XLU).
A good article dealing with this by Michael Kahn of Barron's discusses this. It provides more practice as you learn the material from the handouts today. He points to relative strength as an indicator (recall this is a symbol or index divided by the overal S&P 500). When the relative strength graph is upward sloping, that market is outpeforming the overall stock market. For XLP, that has been the case since mid April.
Finally, note how you can apply lines to other measures such as advancing issues versus declines, or as Kahn's article shows, advance volume vs. decliner volume.
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