Tech got sold yesterday and the market held. That's the tell.
Equal-weight S&P up almost 1% while the Qs fell. The money didn't leave. It rotated.
Something happened yesterday that’s worth your attention. The Qs sold off from the open and closed near the lows. The equal-weight S&P, which treats Walmart the same as Nvidia, was up almost 1%. That gap is the clearest sign of rotation you’ll see.
DRAM, the RAM-stock ETF that doubled in a straight line, gapped down hard. And the S&P held up fine. When the heaviest names drop but the index holds, it means a lot of other names were green. Breadth confirmed it, overwhelmingly positive across the board.
That’s rotation. Money flows out of what doubled and into what hasn’t moved yet. It’s exactly what hedge funds are forced to do. I spent ten years in that world. A lot of those funds have it written in the contract: 95, 98, 99% invested at all times. When one area gets too heavy, they have to move it somewhere. The money doesn’t leave. It rotates.
Where to next? Two sectors stood out. Financials (XLF) and health care (XLV), both breaking out of interesting bases.
Here’s the nuance most people miss. If tech sells off and Campbell Soup and General Mills rip, that’s fear. Pure defensive. That’s a warning. But if financials and health care lead, that’s healthy rotation, not a flight to safety. Know the difference before you read too much into a green day.
One day isn’t a trend. We need more. But this is the kind of tape you want to see in a bull market.
For us this isn’t a scanning exercise. The systems rank relative strength automatically. PDYN, the name I flagged Monday, triggered yesterday and ran about 10% from our entry. They don’t all work like that, but the ranking does the hunting.
17.30% max drawdown over 25 years while the S&P drew down 57%. The systems don’t guess the rotation. They rank it. When they draw down, members hear about it directly in The Drawdown Memo.
Free Starter System and 25-Year Backtest: https://www.statsedgetrading.com/the-25-year-backtest
Stats Edge Pro at $149.99/month with a 30-day money-back guarantee, or $1,499.99/year. Founding tier at $3,000/year for traders who want a 1:1 onboarding call.
— Michael Nauss, CMT, CAIA, CDMS