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Rotation into Defensives

'2026-07-17'
Now Playing Rotation into Defensives

Cracks Appearing

Our Sector Rotation Model clearly shows what is going on right now in the markets: sector_strenght

Sector Strength vs SPY

The former driver of the extreme bullish rally is now the biggest loser: Technology. Or to be more precise, Semiconductors.
semiconductors Interestingly, the market itself is broadening, i.e., money is still flowing into stocks, but into other sectors. The Market Breadth tracks exactly this behavior. Currently, the market is broadening, moving away from being concentrated in Semiconductors or the Magnificent 7 to other stocks. This is clearly observable in our Market Breadth Analysis, which tracks precisely which sector is winning and which sector is losing: breadth Here we can determine four key market sectors where smart money is currently accumulating: Energy Utilities Healthcare Real Estate

These sectors are all Defensives, thus issuing a RISK OFF signal to all investors and traders. The upcoming months could be weak in terms of gains and performance. The 4-year presidential seasonality underlines this further, as we enter the weakest period until the midterm elections in October.

seasonal

Yesterday’s Sell-Off was accompanied by an exceptional ETF flow pattern. Typically, inflows into tech stocks dominate all other sectors by orders of magnitude. However, yesterday we saw massive inflows into Healthcare, Real Estate, Staples, and Energy. etf_flow

ETF Flows - Sector Analysis

Following the inflows, a series of statistically favorable trading patterns have emerged in exactly these sectors:

pattern_statistical_outlook

Statistical Sector Outlook, based on the current pattern distribution

Our stock screener is great to filter Bullish patterns in these exact sectors. stock_heatmap

Stock Screener - Bullish Pattern Heatmap

AbbVie is a good example: abbv_stock

Analysis Chart of ABBV

After a long sideways consolidation since 2005, over the last months ABBV has formed a Cup with Handle formation, and yesterday, with a massive green candle, resumed its uptrend. This breakout was preceded by a massive volume spike, which was caused by a confirmed Dark Pool trade on June 6 and followed by a series of call-option inflow days. Earnings will take place on July 31.

This is in strong contrast with the general market outlook, pointing toward further possible pullbacks, as determined by the Markov Regime Analysis markov

Markov Model for the S&P 500

It is advised to stay cautious and to reduce risk over the coming days and weeks. Current opportunities are found mainly in single stocks and defensive sectors.