Sector rotation to start the year

Sector rotation to start the year, not a surprise given the setup going into year end. However, the big question is whether or not the Fed will commit a policy error. Traders are on the watch for a 2018 Q4 disaster. Time will tell.

To summarize, this week’s trading action is tied to the now oversold tech sector. Sure, any market that is extended way above its 200 day moving average is ripe for a mean reversion trade. Sure enough, looking back the charts tell the story. Late December tech way above 200 day, now way below! See-saw price action.

As of today, the tech sector looks like a buy if you’re a swing trader. Also, long term PMs who are underweight tech might be chomping at the bit to hit the bid down here. Again, time will tell.

Certainly, it’s hard to dismiss high inflation when you take a look at this week’s price action in the energy sector. My guess, pension and big institutional money view energy as a must own sector this year.

Of course, the financial sector can never be left out. After all, investor’s are starving for yield, so it’s a no brainer to buy financials. But, keep and eye on the yield curve. The steeper the better.

Conclusion

To be sure, a sector rotation to start the year has been the market’s opening salvo. The influx of capital from the tech sell off (or mean reversion if you’re into math) is finding its way into financials and energy sector. Indeed, with the Fed set to end quantitative easing, and possibly beginning quantitative tightening, while teeing up rate hikes this year, anything can happen. The risk of policy error has never been higher. So, we have a big sector rotation to start the year and it’s just week one. Buckle up!

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