Cracks Appearing

Our Sector Rotation Model clearly shows what is going on in markets: The former driver of the extreme bullish rally is now the biggest loser: Technology—more precisely, Semiconductors.

The market is broadening—money still flows into stocks, but into other sectors. Market Breadth captures this shift away from Semiconductors and the Magnificent 7 toward other stocks, as seen in our Market Breadth Analysis: While the SPY made a dive yesterday, the number of stocks trading above the daily 20 moving averag increased. This is indicative to big stocks diving and many small stocks going up.

S&P500 Breadth

Smart money is accumulating in four key sectors: Energy Utilities Healthcare Real Estate

These sectors are all Defensives, issuing a RISK OFF signal. The coming months look weak for gains and performance. The 4-year presidential seasonality underlines this as we enter the weakest period until the midterm elections in October.

Yesterday’s Sell-Off came with an exceptional ETF flow pattern. Normally, tech inflows dominate by orders of magnitude. Yesterday saw massive inflows into Healthcare, Real Estate, Staples, and Energy.

Following these inflows, statistically favorable trading patterns emerged in those sectors:

Our stock screener surfaces Bullish patterns in these sectors. Bullish Pattern Heatmap" />

AbbVie is a good example: After a long sideways consolidation since 2005, in recent months ABBV formed a Cup with Handle and, on a massive green candle yesterday, resumed its uptrend. This breakout followed a volume spike linked to a confirmed Dark Pool trade on June 6 and a series of call-option inflow days. Earnings will take place on July 31.

This contrasts with the general market outlook, which points to further pullbacks, per the Markov Regime Analysis.

Stay cautious and reduce risk over the coming days and weeks. Current opportunities are mainly in single stocks and defensive sectors.