The Bulls Are Moving To Different Pastures

Friday’s up move in the SPY, DIA, and IWM further solidified the shift that had been happening all week.

The shift is the bulls shifting their preference of big tech stocks into other areas of the market. The shift out of semiconductors (SMH) and some other tech names such as FB has been obvious in the charts for some time, and for easy to understand given negative their earnings related news.

However, this week the tech weakness broadened to the point where the QQQ ended the week with a red weekly candle while the other three market indexes ended green.

For example, relative weakness showed up in stocks like MSFT, AMZN and GOOGL which have all had good earnings reports and have shown consistent strength since the April market lows.

If the shift away from big tech names continues, it will represent a “loss of leadership” or at least significant change in leadership.

And this isn’t the only interesting sector rotation that is changing the complexion of the bull market right now.

For example, since June the average performance of ‘cyclical’ sectors that would be considered to be favored in an environment of continued economic growth is only +2.1% while the S&P 500 (SPY) ETF has rallied 5.8%.

This is even more interesting when you consider the fact that the average performance of ‘defensive’ sectors has been a strong +7.1%.

You can read more about this interesting shift in the Bulls’ preference for defensive sectors over cyclical sectors in this week’s Market Outlook.

All these shifts could be perceived as bearish for the market as a whole, but active traders and investors have the luxury of being able to nimble so you don’t have to give up on the bull market at this point.

This could simply be another healthy period of sector rotation.

That’s how I’d view it as long as there are some strong ‘non-defensive’ sectors like Retail (XRT) and Transportation (IYT), and so long as the market doesn’t start breaking significant support levels.