Early signs of rotation

I noted on my last blog that some market leaders are showing a bit of weakness. A couple of the FANG stocks (GOOGL, AMZN) have been choppy. We sold these stocks a while ago.

Sector rotation beginning as market leaders, such as GOOGL, one of the FANG stocks, shows weakness.

Sector rotation beginning as market leaders, such as AMZN, one of the FANG stocks, shows weakness.

There also seems to be a bit of weakening in the consumer discretionary sector – which had been a top performer up until a few weeks ago. Note the declining moneyflow momentum (top pane), the recently declining black trendline, and the weakening performance vs. the S&P500 (third pane from the bottom).

Sector rotation underway as seasonally weak period for discretionary stocks turns to consumer staples.  XLY is weakening

 

Meanwhile, the consumer staples sector is showing early signs of strength. This had been a market laggard until recently. Note the rising trendline, strengthening moneyflow momentum and strengthening comparative strength vs. the S&P 500 on the chart below.

Sector rotation underway as seasonally weak period for discretionary stocks turns to consumer staples.  XLP is gaining strength

Interestingly, this rotation is something Brooke Thackray has been noting in his Thackray Guides for many years—that is, a rotation out of discretionary stocks into staples over the summer. Now that the “worst months” from a seasonal perspective (August, September) are upon us, that rotation seems to be starting.

 

If you read my last blog, you know where I stand as far as the risk present on the market. Despite the risk, you really can’t be 100% certain of the future. Thus, we still hold stocks. We’re currently around 40% cash/equivalents, 5% US long bond, and 55% stocks right now in our equity model. That 55% represents market exposure – and risk. To reduce the risk, its best to have some of the seasonally stronger, and/or lower beta stocks within your mix. We hold the SPDR Consumer Staples ETF (XLP) in our equity platform at this time.

 

I’m on vacation this week, so this is my only blog of the week. Back next week with my normal two entries.

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