With interest rates about to rise and yields moving higher, simple deduction reasons that a “possible” shift from technology stocks into financial stocks might have started in recent weeks.
Banks and interest sensitive stocks should benefit in the current environment, so anticipate sector rotation to continue.
“The NASDAQ-100 Index includes 100 of the largest domestic and international non-financial securities listed on The NASDAQ Stock Market based on market capitalization. The Index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain securities of financial companies including investment companies.” – source Nasdaq
Below are NDX100 weightings by sector:
- Basic Materials – 0.33%
- Consumer Goods – 4.62%
- Consumer Services – 24.02%
- Health Care – 14.91%
- Industrials – 2.99%
- Technology – 52.36%
- Telecommunications – 0.77%
Therefore, if NDX100 has no financial stocks in its index and financial stocks stand to benefit in a rising interest rate environment, it reasons that NDX100 will not benefit from rising rates. Money “should” rotate from technology to interest sensitive and financial stocks, shouldn’t they? Furthermore, if NDX 100 is over 50% weighted in technology, we should place particular importance on the earnings reports of tech companies this earnings season.
Additionally, healthcare makes up 14.91% of the index. Lately biotech, pharma, medical and healthcare related stocks are trending lower. XLV is trading below its 200ma. This will exacerbate any decline in NDX.
These developments are definitely something to monitor over the remaining months of 2016.
Reasonable targets are shown in the NDX chart above. Stochastic, MACD and RSI suggest the bearish trend will continue. Intensity of the move should be monitored daily, as price will soon enter the reverse Kirby on a close below 4800.
Volume is above average, printing multiple distribution days this week.
With price below the moving averages, our view for weeks remains the same. Exit existing positions on strength. Look to minimize overnight exposure to stocks. Swings are very risky at the present time.
Attention should be focused on earnings reports from leading technology and healthcare companies.
Unless you’ve been living under a rock, please be informed that we are 100% cash in our 401(k). We will reassess positioning “after” the election.
Happy Saturday – Vinny
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