Macro In Scope
Sector rotation and new chances
As I wrote yesterday, I think we have seen a top in the semiconductor trade for at least a couple of weeks, until the 280 level gets taken out with force:
This does not necessarily mean I am bearish on the entire market as we might just see the money rotating into other sectors, that I will show here.
I will start with the defensive sectors: Utilities, Staples and Healthcare.
Then the sectors, that do not really show any Risk Off/On tendency for the entire market: Energy and Real Estate.
And close it off with the aggressive sectors: Semiconductors, Solar, Biotech, Discretionary, Technology, Homebuilders, Retail, Financials, Industrials, and Materials.
Utilities:
We saw a strong Up move and good relative strength until the end of may, this was fitting the seasonals of the sectors and also had something to do with the AI hype, as people bought into Power Grid Utility stocks, that might profit from more energy expenditure due to more datacenters.
Recently we saw some weakness as all the money flowed into NVDA and AAPL.
But now Utilities are stabilizing around the 50DMA and migth build a higher low.
Staples:
Underperformance across the board, it looks bullish on the chart, but as long as the SPY is outperforming this sector, I cannot get bearish.
We are seeing some volatility contraction here that might lead to a stronger move up or down, but I will just look at this sector on a relative basis.
There is no reason to get long here.
Healthcare:
Same thing with Healthcare, it looks alright, but it underperforms the S&P 500.
Energy:
Energy is historically not a defensive sector, but in times with high inflation, it often trades opposite to the general markets, so i like to see this strong drop, as a sign of inflation becoming less relevant, however this could also serve as a warning, ahead of a deflation scare.
Real Estate:
This sector has underperformed for so long, but it is now starting to show signs of stabilization and could maybe break out of this downtrend.
It all depends on interest rates and the economy, if the FED cuts early enough to not damage the economy too severely, this will fly, if it is too late, we are going to take out the bottom.
Semiconductors:
This sector has been on a monster run and got quite extended recently.
If we consolidate here without dropping too badly, I view it as very bullish for the markets.
Solar:
Thsi is a highly rate sensitive sector, that has been getting absolutely wrecked, after having been the darling of the ESG crowd and retail investors.
It tried to make a comeback recently, but got sold badly again.
Hands Off for me.
Biotech:
I think there is opportunity here, as we stopped a strong downtrend and are consolidating tightly. This might be a sector that truly profits from increased computing power and machine learning.
Discretionary:
This sector had me worried as it is very aggressive and had been underperforming badly. This might come to an end now as we are breaking out of this intermediate downtrend.
Technology:
Basically the same thing as Semiconductors. Needs a consolidation after strong run up.
Homebuildes:
Homebuilders have shown weakness recently, as we had more bad economic news.
It would be good if we see a move back up, but I see no chances here right now, its consolidating and not showing any tendency.
Retail:
We can clearly see that there is no trend at all, sometimes it outperforms, then it underperforms, and the Moving averages are getting crossed left and right.
Financials:
Looks like a bullish consolidation, although it underperfomed recently.
Industrials:
Same as financials, but below the 50DMA, still we could see some strenght coming in here.
Materials:
Again, same thing. Materials had profitted materially from the AI → Copper hype, but corrected strongly.
Main Takeaway:
Consolidation or correction in the most bullish sectors to come in the next couple of days, I am staying cautiously bullish and try to see where the money flows into.
I will go into more granular analysis of the following stocks on tuesday:
EXR, TOST, AMZN, BSX, UHS, PANW, SPOT