Capital flows continue to affect key sectors.
On balance volume, as one measure of capital flow, is bearish on XLV and XLK. Volume on bearish days is higher than volume on bullish days. XLK has been leading, as technology and growth stocks pushed the indices to all time highs.
Summary
The technology sector has been moving sideways, which usually depicts distribution. As this leading sector peaked, on balance volume accelerates lower. Simple deduction suggests this trend in OBV must change, for technology to return to a bullish bias.
Consumer staples and utilities have seen inflows in recent weeks.
Consumer staples show a trend developing, as capital flows appear to be defensive, leading into the election. With one week to go, it is our conjecture that this trend will continue into next week. We must monitor these flows.
XLP shows the 9 above the 20ema, with price above both moving averages. This is bullish. If this sector clears 53.10, we move into the Kirby. That would require a mere 0.30 move.
Meanwhile, healthcare is experiencing massive outflows. Price is below the 9/20ema by comparison. This is bearish, as price is below both moving averages.
The balance of power, so to speak, is in a state of flux. As more sectors yield to bearish capital flow (OBV) we would lean in a bearish direction. We will monitor sector rotation and capital flows, as our success depends on it.
In the interim, staples and utilities (XLP/XLU) are the areas institutions choose to position. Shouldn’t we do the same?
Happy Trading – Vinny
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