Bubble Charts Highlight Sector Rotation
First, let's take a look at the bubble chart of the US major indices. On the X-Axis we have performance since early September and on the Y-Axis we have the Q1 2020 drawdown percentage.
What we're seeing is that the areas that corrected the least like the Russell 1000 Growth Index, Nasdaq 100, and Nasdaq Composite have lagged over the last few months. Meanwhile, the areas that corrected the most during Q1 like Micro-Caps, Small-Caps, Mid-Caps, and Value stocks are up the most since September...showing the strong rotation that's currently occurring in the market.
Click on the chart to enlarge view.
And in India, we're seeing a similar action. On the X-Axis we have the percentage change since the 2020 highs and on the Y-Axis we have the percentage change since September 24th, 2020, when the most recent stock market low was solidified.
What we're seeing is that the areas of the market that are still well below or just approaching their 2020 highs, like the Nifty Bank Index, Nifty Realty, Nifty Metal, etc. are up the most since the September 24th low. And areas like Pharma and IT and that were leaders during the stock market crash and first to make new highs have lagged since late September.
This sector and market-capitalization-segment rotation continue to support the market over the long term. With that being said, it's extremely difficult to be buying some of these areas like Metals or Autos that have run aggressively throughout November.
Instead, we want to focus on the potential rotation back into Technology and other areas that have led throughout the year but have lagged since September. There's a lot of FOMO out there right now, but the reward/risk in a lot of sectors and stocks is not attractive enough to justify new entries in the near-term.
We'll have to remain patient, but better reward/risk setups for our timeframe will present themselves after we see a correction either through time or price in the days and weeks ahead.
In the meantime, we recommend members watch our Monthly Strategy Session and review our Monthly Chartbook to keep updated on the longer-term trends of the assets in our coverage universe.
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As always, thanks for reading and please let us know if you have any questions!