More Rotation Is Coming

June 29, 2023

Sector rotation is the lifeblood of a bull market.

We saw it at the beginning of the year as the laggards caught up to the leaders.

Remember, in the back half of last year, almost everything was working, EXCEPT large-cap growth stocks.

What are the best performers this year? Large-cap growth stocks.

More recently, we've seen rotation into Small-caps and Industrial stocks that were the underperformers in the early part of 2023.

This is perfectly normal behavior for bull markets.

In bear markets you see the opposite. In bear markets, the leaders tend to catch down to the laggards.

This is definitely not that.

So what's the bet?

My bet is we get more rotation.

One area that's been struggling this year and due to catch a bid in this bull market is Energy.

Remember why we bought Small-caps last month? It's because the bet was they would find support at their 2018 resistance levels.

That worked out great.

We're making the exact same bet in Energy. Look at the setup in Crude Oil Futures:

Chevron has been a favorite around here for a few years now. Our initial target was hit, as you can see in this chart below.

And it's been a healthy consolidation ever since:

Zooming in, it looks like 150 is the big level.

If we're above 150, I like Chevron $CVX from the long side. I think there's 30% of upside in the short-term.

This week I personally bought the January 170 Calls.

If at any point $CVX closes below 150, then I'll reevaluate this entire position and strategy and likely unwind the trade altogether.

I like the risk vs reward here.

And I like the bet on further sector rotation.

What about you?

Are you betting that this bull market continues?

Or are you betting that it all of a sudden ends and a new bear market emerges?

What do you think?

We love to hear from you!

Filed Under: