Rotation Rotation Rotation

In bull markets, sectors tend to rotate. Like throwing a Perfect Game in baseball these days - everyone gets a turn (It didn't used to be that way). But in stock markets, this is normal. When equities as a group corrected this Spring, who were the relative leaders? Defense: Utilities, Staples, and healthcare. And now that S&Ps and Dow Industrials are at or near multi-year highs? We see Technology, Energy and the Industrial names leading the way.

Take a look at this relative performance chart that I put together of each of the S&P SPDR Sectors over the past month. Each of the 9 lines show the relative performance vs the S&P500. Who did the worst? You guessed it - Staples, Healthcare, Utilities: (Click Chart to Embiggen)

This is normal and what we should expect to see in a bull market. Rotation is key.

But we do need to see this trend continue in order for equities as a group to keep heading higher. And some of these names also need to start making new 52-week highs, which they haven't yet. The good folks over at Bespoke Investment Group did a nice job yesterday showing the lack of new highs in the individual names while the index itself is already doing so. This chart shows exactly why the old cliché, "It's a market of stocks and not a stock market", is anything but:

We do indeed need to see the trend of decreasing new highs come to an end and confirm the multi-year highs that we're seeing in some of the major averages. That's probably the only thing out there that I can think of that the bears have left. Every other argument has been proven wrong by Mr. Market, who could care less about Europe and your precious fiscal cliffs. And that lack of volume thing we've been forced to listen to for 3 years? My friend Ryan Detrick does a nice job of dismissing that.

I'm up in the Adirondack mountains for the weekend enjoying some of the most beautiful weather and scenery that I've ever seen. So I'm in a great mood hanging out with friends and family and want to keep this positive. Things look good out there, the $VIX is at 5 year lows, the bears are more confused than ever, and the averages are making new highs in the face of "bad news". But we want to see some more participation from the large population of stocks that haven't been confirming these new highs. If the indexes manage to rollover before net new highs confirm, and we begin to see some relative strength from defensive areas again, caution in equities would be advised.

But as of right now? Risk assets are in charge.

Source:

Wanted: More New Highs (Bespoke)

Tags: $XLP $XLV $XLU $XLE $XLI $XLB $XLK $XLF $XLY $SPY $DJIA