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Midweek Market Trend for December 6, 2017

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The big story over the last week has been sector rotation. It appears that investors have been taking some profits in technology, the big winner so far this year, and moving into areas that have lagged, such as the financial (Figure 1), retail (Figure 2), and transportation stocks (Figure 3). There has also been a move from growth into value (Figure 4). Notice how the relative strength line of value to growth broke its downtrend (Figure 4) (A) and has started moving higher.

Figure 1: 

LeeBlog 12.05.17 Fig 1

Source: StreetSmart Edge®  

Figure 2: 

LeeBlog 12.05.17 Fig 2

Source: StreetSmart Edge®

Figure 3: 

LeeBlog 12.05.17 Fig 3

Source: StreetSmart Edge®

Figure 4: 

LeeBlog 12.05.17 Fig 4

Source: StreetSmart Edge®

The question now is whether this rotation has run its course or has further to go. To gain some insight, let’s look at technology. As of this writing (December 5), the technology sector has pulled back to its fifty day simple moving average and has bounced off it (Figure 5).

Figure 5:

LeeBlog 12.05.17 Fig 5

Source: StreetSmart Edge®

It has also held the 23.6% retracement level of its move from the July lows so far (Figure 6). If it can stabilize here, the rotation may be over. If it breaks down through the fifty day moving average, the rotation may continue. 

Figure 6:

LeeBlog 12.05.17 Fig 6

Source: StreetSmart Edge®

The odds of the decline being over will improve if the semiconductors (Figure 7) and the internet stocks (Figure 8) trade back above their respective fifty day moving averages.

Figure 7:

LeeBlog 12.05.17 Fig 7

Source: StreetSmart Edge®

Figure 8:

LeeBlog 12.05.17 Fig 8

Source: StreetSmart Edge®

Another potential clue to the status of the rotation could come from the action of the ten year treasury yield (Figure 9). If it can break through resistance of around 2.42, that could cause the financials to keep moving higher. If it can’t, the financials may lose their upside momentum.

Figure 9:

LeeBlog 12.05.17 Fig 9

Source: StreetSmart Edge®

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