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In This Bull Market, Where Is the Rotation?


Two categories show excellent upcoming possibilities for investors.

The hallmark of a bull market is the fact that the money simply doesn't leave the market. Over the past seven weeks or so, there were ample opportunities for the market to correct. It didn't, and now it has broken higher once more. In fact, other than the Russell 2000 (NYSEARCA:IWM), all the indexes have broken higher at this juncture. It will correct at some point, but a lack of selling dooms those looking for a correction at this juncture. Until that fact changes, it is more of the same.

Bull markets rotate -- especially as they age. What was outcast becomes vogue and that which was hot becomes cold. The past fortnight has seen this process at work, with the safety sectors of health care, consumer durables, and utilities beginning consolidations while technology became hot once more. The big three in that sector are Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG). These three stocks still account for approximately one-third of the entire Nasdaq 100 (INDEXNASDAQ:NDX); thus their movements remains critical for the health of the index. A quick look at the index shows just how serious and fast this rotation has occurred with more than 8% gained in just eleven trading sessions.

Chart from

Given the strength of the rotation and the fact that all the indexes have broken higher now, one cannot expect much of a retrace in this sector anytime soon. This chart and others like it support a continued move higher in this sector, but it's not the only sector benefitting from the latest leg up. Another one showing excellent upcoming possibilities is the energy sector. Take a look at these two charts of the SPDR Select Energy Sector (NYSEARCA:XLE).

Chart from

Chart from

On the daily chart, there is a confirmed ABCD pattern in play now with resistance overhead. As resistance is approached, volume expands, and that bodes wells for the buyers. I would expect some sort of hesitation as resistance is probed but not much of a retrace before the rotation money goes after this sector just as it has the technology sector.

The weekly chart shows two consolidation ranges at the highs. The past couple of weeks saw the bottom half of the range probed, but last week, the push was back to the top range and an attempt to break out of that range looms.

Note that a breakout on these two charts would signify a break of multiple swing point highs on multiple time frames, which opens the opportunity, in my neoclassical book, for a strong fast push in the direction of the break. That looks to be the setup. Clearly rotation is what we are seeing. This looks to be the next group to rotate to.

Twitter: @tatoday
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