Is The Market Turning? What About Energy?
Listen in as Profs. Depew and Krueger discuss the recent action in the market, financials and energy.
The following conversation took place this morning between Profs. Depew and Krueger and was posted on the Buzz & Banter. It is reprinted here for the benefit of the Minyanville community.
Krueger: Curious to get your P&F feel, what changed the most in your mind looking back at Friday's action when the bullish percent indicators began turning down, if it was a turning point for anything big or small, or at all? And if Kentucky football is going to be on TV so much, where is Ashley Judd?
Depew: Gotta wait for basketball for Ashley. Otherwise, nothing really changed in my mind, it's the continuation of the migration to "safer" areas - tech, etc., by large funds seeing the earnings and relative valuation stretch compared to the financials and growth versus vale.
Krueger: What about Energy, finally vulnerable? I was either early or wrong in that notion this summer.
Depew: Still seeing same sectors outperform, tech, biotech, and the sectors everyone wants to believe in - financials and energy - underperform on both the upside and downside.
Krueger: Yep, agree, wanted to make sure I wasn't missing a clue.
Depew: Energy makes sense to be long, which, in my opinion is the most vulnerable time. It makes sense fundamentally and intuitively, technically less so. Same with metals.
Krueger: I really do think at the end of the day, and this is where I likely disagree with many, that the market doesn't depend on financials, rather they are slowly moving to the back seat and will before too long see their market weighting cut in half from the peak and then some, no different than any other multi-year rotation, while energy and materials and industrials move to the front seat and drive. It's healthcare that is the wildcard to me, b/c it will be bludgeoned by politicians and may offer the best bang for the buck for positions initiated over the next 12 months
Depew: I agree and would point out that even when tech, which was about 21% of S&P at the peak, collapsed, that's when financials kicked off their multi-year bull run. In fact, only during the heart of the "deflationary scare" - really just a few months during 2002 - did financials sell off with everything else. And as a strong RS sector they quickly recovered.
Krueger: Agree, and perhaps the reason why it feels more painful (and will be so outside the market) for so many Americans is that we made a trade and a big one and became the bank and broker and risk manager for the world so that "financials" blow ups might hurt "America" more than the "American stock market" which is a misnomer at this point if you can pick out companies that simply are not tied to the fate of our own economy.
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