The Next Great Rotation Is Under Way
Issue 87;
- The next major rotation is under way
- Improving alpha breadth, but beta breadth is still under pressure
- Energy outpaces tech hardware
The World Index has a ByteTrend Score of 2 in USD. All short-term signals are bearish, while long-term remains bullish.
iShares MSCI World ETF (URTH): Developed Markets – Daily, 1-Year
World Market Beta Breadth (in price) – Daily, Past Year
The rotation is underway. More stocks rose than fell last week, as many stocks broke higher, while the large stocks eased back. This is shown in our daily breadth data, and the market has been quick to respond to change. The World Index has remained flat while many more mid and large stocks balanced the weight from easing mega caps.
Breadth Weekly - Local Currency
Yet overall, beta breadth is still in decline. That means the number of winners (green), in terms of price trends, is easing back. The number of losers (red) is not expanding materially, so the neutral zone (yellow) sees the largest growth.
Sectors
Most sectors have fared better, while technology has fared worse. The rotation is broad.
Industries
More specifically, it is tech hardware that is giving up ground.
Technology Breadth
Technology stocks are easing back, with a decline in leading trends (green). Bear trends (red) are not expanding, so the neutral zone is taking up the slack.
Energy Breadth
The number of winning energy stocks is expanding, while the losers are in decline.
Oil Producers vs Refiners
So far, it has been all about refiners. Diesel and jet fuel shortages have led to high prices, driving the “crack spread”, which boosts the refiners over the producers. The major development is that the forward price of oil is now rising, which will drive the producers. When the war began, the refiners were a contrarian trade, having lagged the energy sector since the pandemic. That has now changed, and the producers may step back into the lead.
Energy Producers
The spark charts are useful for a quick view as the sector improves again.
Trend Type Performance
The number of bear trends has eased back while the emerging trends have exploded higher. This is what a rotation looks like. Expect the equal-weighted index funds to beat the cap-weighted funds once again.
Trend Type Performance
Emerging trends are performing, but leading trends are under pressure. The bear and weakening trends have stabilised.
Outlook
This is not a 2009-type rotation, but more of a 2000 rotation. Bonds have stabilised, at least for now, easing the pressure on most companies. If a bear market is unfolding, I currently expect it to be narrow, meaning the big stocks give up ground, while the average stock proves to be more resilient.
That list of energy stocks has a fantastic opportunity staring me in the face. I’ll be writing my next Venture note shortly.
Thanks for reading the Global Trends Investor.
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