Wagner Daily: ETF Sector Rotation Is In Full Force

Although stocks ended higher on Friday, a distinct divergence has entered the market. The health of the Nasdaq is in question as semiconductor and other tech stocks are on the cusp of losing support. Further, sector rotation is apparent. As technology and homebuilder stocks are getting hit hard, oil, emerging market and pharma/biotech stocks are rallying. Money is churning around the market at the expense broad based participation. The S&P MidCap 400 led all indices, as it posted a 0.7% gain on Friday. The small-cap Russell 2000, S&P 500 (NYSE:SPY) and Dow Jones Industrial Average (NYSE:DIA) all closed higher by 0.5%. The Nasdaq was the day’s laggard as it struggled to finish up by 0.3% on the day. It is also noteworthy that the Nasdaq and the S&P 500 closed in the bottom half of their intraday ranges.

Turnover ended the session mixed. Volume was up by 11.2% on the Nasdaq but down by 6.6% on the NYSE. While the NYSE saw advancing volume outperform declining volume by a ratio of 2.8 to 1, the Nasdaq saw declining volume move fractionally higher than advancing volume. Friday’s price action and market internals support the presence of sector rotation.

Below are eight ETF charts. Upon review of these charts it appears as if sector rotation is in full force. The semiconductors (NYSE:SMH), technology (NYSE:TYH), homebuilders (NYSE:ITB) and networking (NYSE:IGN) are all showing signs of distribution. On the other hand money is flowing into crude oil (NYSE:OIL), biotechnology (NYSE:IBB), medical devices (NYSE:IHI) and emerging markets (NYSE:EDC). Over the past several trading days the divergence among these ETFs provides reasonably clear evidence of sector rotation.

Money is rotating out of the following ETFs:

While money is moving into these ETF groups:

If the market sells off this week, the Nasdaq could very well lose its 50-day MA. Since the Nasdaq is generally a leading market indicator, this could result in a broad market pullback for several days. However, it is also possible that we continue to see both strong and weak sectors, thereby providing opportunities on both sides of the market, while the market consolidates.

The commentary above is an abbreviated version of our daily ETF trading newsletter, The Wagner Daily. Subscribers to the full version receive specific ETF trade setups with detailed trigger, stop, and target prices, as well as daily updates on all open positions. Intraday Trade Alerts are also sent via e-mail and/or text message, on as-needed basis. For your free 1-month trial to the full version of The Wagner Daily, or to learn about our other services, please visit morpheustrading.com.

Deron Wagner is the Founder and Head Portfolio Manager of Morpheus Trading Group, a capital management and trader education firm launched in 2001. Wagner is the author of the best-selling book, Trading ETFs: Gaining An Edge With Technical Analysis (Bloomberg Press, August 2008), and also appears in the popular DVD video, Sector Trading Strategies (Marketplace Books, June 2002). He is also co-author of both The Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader (McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. Wagner is a frequent guest speaker at various trading and financial conferences around the world, and can be reached by sending e-mail to: [email protected]

DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter “The Company”) is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock’s actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Daily (hereinafter “The Newsletter”). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may or may not buy, sell or have positions in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never guarantees future results.


Leave a Reply

Your email address will not be published. Required fields are marked *