(Please enjoy this updated version of my weekly commentary from the POWR Value newsletter).

Sector rotations often coincide with periods of consolidation. That being where the market trades in a narrow range around key technical levels.

That is happening around the 100 day moving average at 4,542 (and yes, we closed a notch above today at 4,546).

Typically the overall market average settles down to more modest daily gains/losses. But under the surface the money is violently whipping around.

Profit taking and nasty losses in some groups leads to a rotation of that money to another group that enjoys bedazzling gains on the day.

For example, today transportation stocks were on the outs: -5.02% for Railroads and -6.19% for trucking. That’s really rough.

No doubt some of that money made it into winners like:

+3.25% Water Utilities

+3.20% Silver Mining

+3.12% Oil & Gas Drilling

(Get a more complete picture of daily/weekly/monthly sector rotation on the Groups page @ Finviz.com. Just use the drop down to shift from Sector to Industry.)

Yes, there are always daily winners and losers. So the thing that makes the sector rotation games unique is the EXTREMES on those moves. And how those trends are so short in duration.

Meaning I wouldn’t be surprised to see Trucks and Railroads become serious outperformers going forward.

This is really a call to investors to be patient and don’t get drawn into the noise of the loud price action. Better to pull back to focus on the longer term picture.

Meaning if the fundamental outlook for the group has truly deteriorated, then yes reduce your position or get out altogether.

BUT if the outlook remains positive and the price action is just part of sector rotation games, then “Remain Calm and Carry On” with great expectation of a hearty bounce to come.

Now let’s pull back to the overall market picture. It remains bullish because no matter how loud folks talk about inflation, the Fed and/or Russia/Ukraine. None of these items right now is altering the positive trajectory of the economy.

Both the ADP and Government employment reports for March showed impressive job gains north of 400,000. Note that anything above 150,000 jobs added a month should equate to a lowering of the unemployment rate.

Indeed, that did go lower this time around to 3.6% from 3.8%. This means we are nearly back to the same robust employment levels as seen pre-Covid.

Today we also got served up a healthy 57.1 reading for ISM Manufacturing. Most impressive of which is the improving employment reading which bodes well for future hiring. However, if there is a point of concern it would be the 53.8 showing for New Orders.

Yes, anything above 50 points to future expansion. But that reading has spent most of the last couple years between 57 and 62.

Granted those are unsustainably high levels. Yet falling from 61.5 last month to 53.8 this month does make one pause to consider if this is the first sign of future slowing. And thus we will continue to watch the results closely going forward.

That’s because if the economy does buckle under the pressure of higher inflation or supply chain issues or Russia/Ukrainre or whatever comes next…then it would lead to a correction in stock prices that would compel us to become more defensive.

For now we will stay with our bullish bias in place…try to ignore ridiculous price action that comes hand in hand with sector rotation phase…and be prepared for whatever comes next.

What To Do Next?

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All the Best!

Steve Reitmeister
CEO StockNews.com & Editor of POWR Value trading service

SPY shares . Year-to-date, SPY has declined -4.34%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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