Sector Rotation Well Underway as Tech Stocks Run Out of Steam
Craig Thompson | Jul 25, 2023 17:53
One of the hallmarks of a bull market is sector rotation. I am sending out this update because we are starting to see the early signs of money moving out of technology, which has led this year’s market rally, and into lagging sectors/industry groups.
Below is a weekly chart of the Nasdaq 100 and last week’s candle is called a shooting star, a loss of momentum candle that suggests a possible change in trend.
Negative Momentum
Below is a daily chart of the Nasdaq 100 with the MACD (momentum) indicator in the lower panel. The MACD has rolled over and is displaying a negative divergence with the price chart. This all suggests the odds of a pullback in the index is elevated in the near term.
Sectors on the Move
Energy
Below is a chart of the Energy Sector ETF (XLE (NYSE:XLE)) in the upper panel and the MACD in the lower panel.
XLE has advanced above its downtrend line, retraced to that line, and advanced to a new short-term high. Additionally, the MACD has crossed above zero and is above its moving average.
Healthcare Sector
The Health Care Select Sector SPDR® Fund (NYSE:XLV) has advanced above its downtrend line and its MACD is advancing above its moving average.
Get The App
Utility Sector
The Utilities Select Sector SPDR® Fund (NYSE:XLU) has advanced above its downtrend line and its MACD is advancing above its moving average.
Commodity Index
Below is a chart of the Invesco DB Commodity Index Tracking Fund (NYSE:DBC) and like the charts above, it has broken out of a downtrend with positive momentum.
Over the past few weeks, I have added holdings in those sectors that are showing signs of strength and recently shorted market indexes (mainly the Nasdaq 100) as a hedge.
I will continue to rebalance client accounts based on our ongoing analysis of market technicals.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.