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Todd Harrison: Sector Rotation Dominates the Stock Market

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What to watch on Freaky Friday.

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Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

The final phase of our five-session set is upon us as the lack of negative news, continued momentum, and the specter of quarter-end combined to give the bulls the ball out of the gate.

We scripted the road map over the last week or so, and the banks remain the primary driver, with BKX (INDEXSP:BKX) 71.50 the technical backstop. 

The collective focus now shifts to the transports for a move through TRAN INDEXDJX:DJT) 7600, which will provide yet another technical blessing of the breakout through S&P (INDEXSP:.INX) 1850, NDX (INDEXNASDAQ:NDX) 3640, and RUT (INDEXRUSSELL:RUT) 1182.  Those levels have been tested a few times and held like a champ; upside targets include S&P 1960 and BKX 77, if and when.

Of course, every day is a new day, or that's what I've been told, and high-beta is getting hit hard on this Freaky Friday, with LinkedIn (NYSE:LNKD), Netflix (NASDAQ:NFLX), Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN) and Priceline (NASDAQ:PCLN) currently dancing in red dye. Biotech is also getting smacked, and as that sector led the tape higher, we should note that it's trading well under IBB (NASDAQ:IBB) 260 support.

The bulls maintain this is shaping up to be the same type of sector rotation that we saw yesterday (into semis (INDEXNASDAQ:SOX), telecom (NYSEARCA:IYZ) and banks (BKX), and away from biotech (IBB), REITS (NYSEARCA:IYR), Utilities (INDEXNASDAQ:UTY) and Health Care (NYSEARCA:IYH) but that remains to be seen.  As we know, sector rotation is a lot healthier than outright migration, unless of course you're on the wrong side of it.

Continue to watch the banks; if they break rather than bend --and especially if they give up the level attained yesterday -- that would be cause for pause; the S&P, of it's part, has a good 30 handles before it tests the will of the bulls anew, but there's a lot of room between here and there.

While Russian and Chinese newsflow is relatively light, I remain of the view that we're in the earlier innings of both in terms of potential market catalysts. There seems to be a lot more "there" there as it pertains to Mr. Putin's grand plan. Keep an ear to the ground while remembering that active traders should attempt to filter out big-picture noise.

China and Japan will end the week above their respective technical support levels, so they've got that going for them.

So has Germany, for that matter.

Twitter (NYSE:TWTR) trades funky again. Either a big seller is leaning on the stock or there is distribution for another reason. I don't know, but you can learn a lot just by watching.

GW Pharmaceuticals (NASDAQ:GWPH) is a stock I've been IN-N-OUT of for over a year, and it got a lot of press during its 875% run since last summer.  The stock has pulled back 20% since the March high and will test one trend line into $64 and another into $52ish.  I will look to revisit the stock, but it's got some time (and price) before I do.

Lots going on so let me get this to you; good luck today, and may peace be with you.

R.P.

Twitter: @todd_harrison

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No positions in stocks mentioned.
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