Ryan Puplava's Blog

Picking up from last week’s article, I wanted to continue to develop the notion that the market is rotating out of growth and into lower beta stocks. In addition, some other signs of de-risking are developing.

The risk-on versus risk-off trade, aka RORO, has been the modus operandi (MO) of many investors over the past several years. The Fed is going to goose the market? I’m going all-in the beta trade. Europe is imploding and the euro will cease to exist tomorrow? Sell, Sell, Sell!

I’ve been doing some recent work on housing to check back in with the health of the recovery. There are a number of different statistics we can look at to gauge housing’s health.

There wasn’t a lot of driving news this week. Price has been the biggest catalyst of this move. Higher highs beget more highs, which has attracted more bullish sentiment and more believers.

The dollar has rallied through the month of February as a result of a number of bullish catalysts. Technical support, Italian elections, FOMC minutes, and ECB meeting expectation were all reasons to be bullish on the dollar. I believe these items are behind the dollar and it’s time for a correction. It could also be inferred that a rally is due in commodities. The only thing holding back a dollar correction is a strong employment number tomorrow. That question will be resolved soon.

I wanted to discuss some technical relationships I’m starting to see in the market that might shed some light on recent events. The goal is to help us identify corrections and rotations in the market between various assets classes and stock sectors.

A correction is finally upon us. Traders have been holding their breath for weeks and can finally exhale. Portfolio managers holding onto 10 to 20% in cash while the market rose are probably feeling itchy on the trigger to put that money to work, as performance anxiety sets in.

European stocks have taken a breather this week on the back of political unrest in Spain and Italy over the weekend. The market has had a nice month clear of tail risks. With the extended move in equity markets worldwide, investors are looking for excuses to take profits.

Last week, I quickly discussed the performance in sector funds over the past month. We have new emerging leadership in energy this month while financials take a breather. I wanted to take the time to focus not only on short-term changes, but also show current trends that are still in effect.

The U.S. equity market continues to look very bullish right now, but it’s also starting to enter into a territory a technical analyst would call “extended” and “overbought”.