Sector Rotation

MarketSurge powers the charts in this video.

We saw several inflation reports in a row coming above estimates. It didn’t matter much in February as most stocks continued higher. The narrative seems to be changing in the middle of March. Interest rates began to rise quickly last week. This time, this was coupled with weakness in small caps and tech stocks and a rise in basic materials and energy. Is the inflation trade back on? I doubt it is sustainable for too long but it is the current trade. The Fed meets On March 19 and 20th and it is expected to keep the rates where they are. They will surely extend the status quo longer if there’s any doubt that inflation has a chance of rising again. 

We are likely still in a bull market. Even bull markets correct. In fact, the best risk-to-reward entry points during bull markets come after a slight 5-10% pullback in the major indexes. I’d be thrilled if we see one over the next 2-3 months and get the opportunity to buy some of the market leaders near their YTD VWAP.

The market is in a pullback mode, breakouts seem to be failing, pullbacks to major moving averages are not holding, more and more earnings reports are getting sold, volatility and choppiness have increased. Long swing trades have become more challenging in tech but are still working well in energy, metals, and retailers, at least for now.

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