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Watch the Rotation


  • I continue to expect ROTATION to be the name of the game for a while vs. pure market timing.
  • Consumer staples seem to be catching the money flow right now. The way I track this is through Consumer Staples SPDR (XLP).
  • Financials are bouncing around, and the signal that I outlined last week is intact. That means there should be a pullback on average of 8% over the next few weeks.
  • Roughly 60% of the OEX and NDX components are in overbought territory, using a 14-period stochastic with a 3-day average. That is down from the low 70s toward the end of last week. In other words, the market is in a consolidation mode working off an extreme overbought condition. It is frustrating the bulls and bears, but keeping the rotational hawks busy.
  • Defense stocks also seem to be picking up a bid on the charts.
  • Brian Reynolds has been doing some great work on the Corporate Bond department, and has been a few weeks ahead of today's column in the WSJ. We talked this morning about the fact that at some point not that far away, Ford (F:NYSE) is going to come to the U.S. market with a bond offering. Everyone is watching this as a "tell" of forward demand and ability for lower investment grade companies to price deals. The market has likely discounted a successful bond offering. But has it factored an oversubscribed offering into stock prices? There is almost a mania in the market to capture better yields and that is constructive because it allows capital -- destined for growth -- to be raised. That is good because it insures against a meltdown for the time being, but junk spreads are still double-to-triple what they were five years ago.
  • I go the opposite way from the conspiracy theorists because I believe they give people way to much credit for being THAT smart and THAT quiet about it.
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