Regime Change?

JC Parets
July 30, 2023

I still don't think the second half of 2023 is going to look like the first half.

A lot of things could be different.

Let's remember, in the back half of 2022 almost every stock and sector was already going up, EXCEPT for Mega-cap growth.

And then in early January, they got the rotation they were looking for, and it became Tech and Growth as the leaders of this Bull Market.

Now that we're in Month #14 of this Bull Market regime, and we've seen several cycles of rotation already, I think it's time for another one.

First of all, take a look at the Nasdaq100 $QQQ currently running into former resistance from late 2021, that preceded the failed breakout and ensuing collapse:

We're right back to the scene of the crime, a perfect place for the Nasdaq to take a breather.

We're seeing the same thing in the S&P500, which makes sense considering its largest weightings:

Over half the Nasdaq is Tech and a huge chunk of the S&P500 is Tech as well.

Notice the lack of Energy and Materials in those Indexes.

Here is the S&P Technology Index trying to hold this breakout to new all-time highs.

Can it do it?

Remember that almost half of the entire Technology Index is just Apple and Microsoft.

While Apple is holding above those former highs (like the $XLK Tech Index), Microsoft is already failing:

If Mega-cap Technology is not participating to the upside, then the S&P500 and Nasdaq100 are going to have a harder time going up (like in 2022).

The bigger question, for me, is more about whether other sectors resume their leadership, or if they all fall together?

Here is a big tell, in my opinion. Industrials are already making new all-time highs. Their ability to hold on to those new highs will likely tell us a lot about how the rest of the market is responding to a potential pause in Tech and Growth trends:

At the end of the day, it's all going to come down to the US Dollar.

If the Dollar index is NOT falling, then I think stocks in general are going to have a hard time going up in the back half of the year.

I don't believe this is a 'want', but more of a NEED for this bull market to continue strong through the end of 2023.

Here's what the Dollar Index looks like. If it's above 101.50 then stocks are most likely selling off or generally struggling, at the very least.

Take a look at the Equally-weighted sector returns for the first half of 2023.

Technology leading the way, followed by Discretionary, Industrials and then Communications.

A lot of Growth leadership. But the Financials, Energy and other Value areas struggled to get going:

Now here's what the 2nd half of the year looks like so far.

The leadership is coming from Energy, Financials and Materials.

This is very different than what we saw in the 1st half:

Just as many investors are (finally) coming around to this being a bull market, and Tech is a leader once again, perhaps a nice little rug pull is in order.

Energy is a place I think continues to catch a bid. Here are 7 Energy stocks you want on your radar.

Energy has proven that it doesn't need Tech or most other sectors going up for it to do well. Energy is on its own.

We'll be discussing this new regime and the transition into a new era for this ongoing bull market on Wednesday @ 6PM ET.

Premium Members make sure to register here for our LIVE Monthly Charts Strategy Session.

You don't want to miss this.

JC

 

 

 

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