Actionable insights — Rotation, Not Correction
The repeatable analysis behind the call: not what he bought, but how he distinguished a rotation from a correction — a breadth falsification check drawn from 2008 and 2022, and the screen that follows if the check passes.
How to read this page: each insight is a method — a diagnostic you can rerun on the next "is this the top?" scare, drawn only from what this post actually did. The boxed line shows how it played out here. (Paid Substack post, no video — references link to the article.)
1. Before believing a correction call, run the 2008/2022 breadth falsification check
The repeatable method
- When the tape looks toppy and you're tempted to sell the index, do not act on the headline index alone — first inspect two internal gauges: the banks (regional-bank index, as a proxy for credit health) and the cumulative advance/decline line (as a proxy for how many stocks are participating).
- Recall the shape of a genuine top: in early 2008 and early 2022, both of those gauges were rolling over even while the index itself was still parked near all-time highs. That bearish divergence — index high, internals sagging — is the tell that precedes a real correction.
- Now check today's readings against that template. If the banks and the A/D line are instead breaking out to fresh highs, the divergence that defines a top is absent, so the odds shift toward a rotation (leadership changing hands) rather than a broad correction (everything falling together).
Here: KRE had completed a multi-year breakout and sat just under five-year resistance (a push above 80 = a new all-time high), while the cumulative A/D line "continues to attain fresh peaks" — "in contrast to early 2008 and early 2022 when both KRE and the cumulative advance/decline were turning down even as the stock market was close to all-time highs." Small caps and the equal-weight S&P at new highs added a third confirmation.
Watch for
- The regional-bank index and the cumulative A/D line either confirming (new highs = rotation) or diverging (rolling over under an index near its highs = the 2008/2022 correction setup); a KRE break above ~80 as the extra bullish trigger; small caps and the equal-weight index as the breadth cross-checks.
2. If breadth says "rotation," screen for pulled-back sectors that already range-expanded but stayed in an uptrend
The repeatable method
- Once the breadth check argues rotation over correction, don't chase what's already extended — go looking for where the money is likely to rotate into.
- Screen for a sector that has already shown a clear upside range expansion (a decisive breakout out of a long base, proving demand), has since pulled back (so you're not buying the spike), yet remains in a long-term uptrend (the pullback is a dip, not a break). That combination — proven strength + a cheaper entry + intact trend — is the setup to buy.
- Prefer a broad sector ETF over a single name, so the thesis is expressed on the group rather than on one company's idiosyncratic risk.
Here: the named qualifier was "Haymaker favorite" XLE, "the ETF of leading energy enterprises" — a sector that "pulled back after achieving a clear upside range expansion but remains in a long-term uptrend."
Watch for
- A prior decisive breakout (range expansion) on the sector chart; a subsequent pullback that holds above the long-term trend; a sector ETF as the vehicle; and confirmation that the broad-market breadth signals (insight 1) still favor rotation before committing.
Methods distilled from the paid Haymaker newsletter (text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.