Same Money Just Different Sectors

So what’s goosing this market? Not big cash inflows to mutual funds. The “new” money to drive this thing just isn’t there. Yet.  About twenty five billion dollars has been taken out of mutual funds over the past month or so, although we did see some loot, (about a billion), get committed so far in January. That has helped, but it’s still nowhere near where money flows need to be to drive a nail through the heads of remaining shorts.

That’s OK though, the market drifts higher, ignoring most bad news and that is what “up” tapes are supposed to do. Problem is it never lasts. Down tapes don’t last forever either.

So what we are left with are mini sector rotations within the bigger picture. Money moves around quickly and none of the money is of the “sticky” type.

The money committed to to the financials is still there. The rally that started in $XLF since the end of November has hung around. The ETF has gone from 11.70 to 13.92.

Yesterday the semiconductor sector exploded and there were 5 and 10% winners in that group all over the place. That group could run for a while.

We’ve seen a dramatic pop in biotech, as the $IBB index has just ripped. Stocks like $AMGN, $CELG and $GILD have tagged 52 week highs.

Coal $KOL and energy $XLE, have lagged  as well as the oil service group $OIH. I got long energy yesterday, as I think they may pass the baton to the sector soon. Whoever “they” is.

Housing stocks $XHB  are starting to trade like its 2008 again, but utilities $XLU are trading lower as risk gets put back on.

So what’s my point? The key to success trading over the short term is to  try and figure out what sector may be used as a source of funds to buy the next sector. Will they sell financials to buy energy or will they start peeling out of biotech because the think the coal sector is just too cheap?

Without  massive inflows of new funds we will probably play the rotation game as sectors get bought and monetized at the same time. But that’s the market and there is nothing wrong with this dynamic. So far market depth and breadth has been pretty good.

When Joe Sixpack comes back into the market with reckless abandon that is when we will most certainly top. We”re not there yet. Bottom line, it’s a great trading market.

My subscribers are having a phenomenal January. Email [email protected] if you would like to see performance.




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