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Watching Rotation



The best time to look for where money is rotating is during times of equity market consolidation. Such has been the case over the past two months. The S&P 500 is basically unchanged and in a range since June 9th as the overbought condition is relieved (Exhibit 1). Because it is the second month, we believe now is the time to look at which sectors are acting significantly better or worse than the overall market in order to see what may be a theme going forward.

Those that are outperforming the S&P 500 during a market wide consolidation period may offer an early indication of future strength, especially since the move off the March low was so broad. As the market experiences broad gains as was the case from March-June and the pace of gain slows (consolidation period), portfolio managers have time to "pick their favorite areas" versus broadly increasing exposure off a low that has limited new fundamental data.

What Seemingly is Attracting Money?

What isn't Attracting Money?

Now that we have identified what has been doing better than the overall market, as measured by the SPX during the recent consolidation phase, what hasn't performed well may offer indications of underperfomance going forward:

In sum, these trends could always change during the rest of the consolidation process, but enough time has elapsed to make some accumulation and distribution relative strength assumptions. Even if the market encounters further correction, we expect the above trends may offer some important clues.

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No positions in stocks mentioned.
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