Sector Rotation and the Economy

There is an excellant article in the ChartWatchers newsletter by John Murphy entitled Sector Rotation Says Bearish. John Murphy is well known to students of market techical analysis. His book Technical Analysis of the Financial Markets is one of the best on the subject. The diagram below shows how the stock market, depicted by the red line in the diagram, preceeds the cycle of the economy which is represented by the green line. Stocks lead the economy. At this point in time the energy sector is at a high and the financials are at a low indicating we could be in that early recession phase of the economy. For a 65 day performance chart of the sectors see here.
Click on diagram to enlarge.