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.
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.
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