The global markets continue to suffer along with the U.S. as fears of inflation accelerate. CPI last week showed a rise of 4.2% over the last 12 months. Throw in rising oil cost and the average price of gasoline above the $4 mark and you have to start questioning what the future holds? That was the catalyst last week for the selling and there is still an underlying current of more to come if the data doesn’t improve. Throw in continued concerns from the financial markets and you have the potential of more selling on the horizon.

Scanning the ETFs based on the last five day trend versus the market it is not surprising to see that energy, agriculture and materials are the leaders. The move back to the previous leadership is not uncommon. The market was in the process of rotating to growth when  the scare of inflation and a diminishing outlook for growth sent investors scrambling back to their comfort zone.  The questionable outlook remains the underlying issue short term. This innate fear of the unknown is keeping the market in check and investors on the sidelines for now.

On our website SectorExchange.com we publish every Monday a Sector Spotlight and this week we highlighted industrials. This sector is one the ones that went from leader to limper last week. It is now on our watch list looking for some leadership to return. The push to the downside came from the transports and defense. One hit by speculation (defense) and the other impacted by the rise in crude oil (transportation). The ETFs to watch concerning the sector are (AMEX: IYJ), iShares DJ Industrial Fund, (AMEX: PRN), PowerShares Industrial Fund and ProShares Ultra Industrial Fund. Each offers a different approach to tracking the index. Take five minutes to read the spotlight for outlook on each fund and the sector overall.

Today the focus in on follow through. Can the market follow through on Friday’s bounce? This will be the question of the week. If we fail to make any gains our start to trade lower we bring the March lows into to play. Practice patience this week and let the market tell you what the direction.