I’ve referred to the market over the past couple of years as a “stealth” market. That is, one that sees money rotate from winning stocks into depressed stocks, and vice-versa. Rotation from sector to sector is also becoming faster and more pronounced of late. I’ve created a little mantra – perhaps it won’t become as well known as the one created by Don Vialoux—that is, “Sell in May and Go Away” . But if you can remember the following ditty, it may help you in markets as we move forward:
Yesterday’s hero becomes tomorrow zero.
In today’s blog, I’d like to suggest that there is at least some potential for a major rotation to occur this winter from my current favorites (“hero’s”) of US technology, Canadian banks, Canadian telecom, US consumer discretionary stocks into the currently depressed energy and materials sectors ( current “zero’s”).
First, let’s look at the S&P500 and its current resistance levels. As you will note on the chart- we are still in a sideways market. Yes, we’ve put in a bottom after the summer’s top, then correction (all of which, as readers know, this blog called correctly). Yes, its rallying at this time. But the ceiling at 2130 or so on the S&P500 has been tested (at or near that level) too many times since March of this year. It’s not going to be easy for the markets to blow through those old highs. I’m not saying it won’t happen. In fact, it probably will – eventually. But I do think the markets will pause at that point, and probably begin to rotate from today’s leading sectors into some depressed sectors. That rotation may be what pushes markets to new highs. Or…not. We shall see.
Below is a chart of WTI oil. I believe that oil, and energy related stocks, are in the process of basing. They are not buys at this time. They are merely “watch” candidates. I’ve drawn the neckline levels I’d like to see broken to the upside that might inspire me to begin rotating into them. As you will see on the WTI chart- oil is trying to put in a bottom. Officially, its still in a downtrend (lower highs and lows, below 200 day MA). Will it put in a H&S bottom? You and I can’t say. It’s much too early to make such a prediction. But, the formation looks like its attempting such a move. Time will tell. A break of $62 would indicate a new bullish phase for this commodity and a return to $90. That’s a long way off. But, things change quickly these days. Keep an eye on oil.
Energy stocks – which can be influenced by natural gas in addition to oil (depending on the individual stock’s revenue base) , are still in a downtrend. I’m illustrating the sector via the iShares Capped Energy ETF (XEG) below. Again, below the 200 day MA, lower lows and highs. As the police officer says at the site of a disaster “Nothing to see here, folks, move along”. True for the energy sector, nothing bullish to see here folks….yet. If, and only if, $12 is broken to the upside – and holds for a few days or more- for this ETF and many of its components, there may indeed be something to see here.
Keith speaking at the MoneyShow this Saturday October 31, 2015 at 3:30pm
Please come out and join me – I really enjoy meeting readers of this blog at my speaking engagements. Here is the link for the details.