Lunchtime Look- Defensive Rotation

Some of the “sky is falling” folks have come out of hibernation this morning because the market is down. Not even 1%.

Is it the start of something bigger? Maybe. All the wrong sectors are leading for us to have  a healthy market right now. Treasuries are getting bought aggressively still, and global rates are falling precipitously and are right now the lowest they have been since Shakespeare.

Utilities are making all time highs and consumer staples are too. Both of these sectors are defensive. So risk is off here and folks are looking for safety and some yield.

We can never rely on just one chart or indicator, but the fact that money remains in treasuries and isn’t supporting the “stronger economy ahead” theory that the Fed is pushing suggests we could still see plenty of turbulence ahead in terms of stock market performance.

The U.S. Dollar is also up for the second day in a row so that is pressuring some commodities.

If you’re in the camp that “the bond market is usually right”, then its time to scale back a bit here. The bond market is usually an excellent “tell” on what is to come, so the action in bonds shouldn’t be discounted.

I know that personally I’ve been knocked around this month and that usually only happens to me when we approach tops. Not sure why that is, but it seems to happen.

Right now the SPX is breaking 8 & 10 day moving averages as they cross lower which shows that short term momentum is under some pressure. Not the end of the world, but we all know consensus can change fast and reversals can happen quickly and dramatically, so be aware.


China releases some economic numbers over the weekend and it could be a big mover up or down on Monday.  European stocks are down the  most since February and the Yuan is hitting 4 month lows.

I’m very tempted to increase some short exposure, but one day isn’t a trend so I will wait. I may nibble later though, and if I do I will let you know.



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