Selloffs and Sectors


When you really drill down, the market is just about sector rotation, cycles, and overbought and oversold. Not oversimplifying, it just is what it is.  Forget the white noise and the pundits. It’s just regurgitated drivel from bean counters and academics for the most part.

Many of these folks have been preaching “high paying” dividend stocks. Many still do, even as stocks like $T , $VZ and utilities ($XLU) are collapsing. What they don’t get, is that when stocks get sold, they all get sold. This goes for consumer staples too. Did you see $XLP last week? They would have you carrying cereal stocks to your grave. Don’t get me wrong, they’re great stocks, BUT its all about your entry. That’s my only point, and if you own $VZ at 55, it hurts just as much as a stock with four letters that gets bludgeoned. “Quality” gets hit too.

Look, Friday could have been a big shot across the bow by the bears, and who knows where we trade next week. The bulls have been buyers on dips now since forever, so we’ll see if that will continue.  In drawing simple uptrend lines, I can easily make the case for this market to trade lower, as it may need to go back and retest earlier levels For example, the builders/housing $XHB could easily go back down and tag the 28-29 level before it resumes higher.

The financials ($XLF) still look great and they will print more money with rates moving higher. So the banks will do well with rates upticking, but housing (at least for now), wont, because higher rates are bad for them. Lets see how many folks  get mortgages now without a perfect credit score. That gets harder. Banks will probably ease restrictions though, this is needed to fully validate the new bubble we’re in anyway. History repeats. It’s all quit hilarious….but great for stocks.

Look at some of the specialty chemical stocks that have nice charts like $FUL $WLK $DOW $LYB

Unless for a trade, I will avoid gold. There is so much room lower on this asset class that its not even funny. Not the place to be with rates rising, growth improving and the Apocalypse off the table for now. Play at your peril other than for a trade. $GLD died almost to the penny  at its 20 day simple moving average on Thursday and rolled over Friday. That may have been the dead cat bounce. Silver $SLV looks like a train wreck too, although William Devane and Lear Capital think differently.

Semiconductors look decent if you look at the chart of $SMH.

Biotech $IBB has been a monster sector the last couple of years and many are waiting for the flush out that hasn’t come yet. I’m  still long various names in this group because their charts are just too bullish to ignore. Some charts are cracking a bit, but some are just warming up. Just look at what $AEGR has done lately. I still like $KERX, $ACAD and others.

The refiners still look OK here, and names like $PSX, $VLO, $TSO and $PSX can still play higher.

Anyway, this is just me thinking out loud. We got overbought and many thought that 50 handle pullback that happened on May 22 came and went. It didn’t, the sellers reemerged and caught many off guard. It’s not always the first bite at the apple but the second bite that gets you.  We saw that second bite on Friday.

I’m still very bullish, but pullbacks are part of the game. Hard to believe we almost have the first half of the year in the books. Time flies. The $SPX broke the 20 day on Friday, so it s possible (barring a massive dip buy tomorrow) that we can see 1580-1600 as a retest. It wont be the end of the world, so have some powder dry. This would be great and will help shake out some froth. Stay tuned.

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