Breakdown in the Momentum trade worth paying attention to

Near-term trends are bullish for SPX, and I anticipate a sharp rally to finish the month of October after an interesting period of sector rotation in recent weeks. Monday’s success in climbing over last week’s highs for SPX and QQQ should enable these to both push back to new all-time high territory.   Despite some minor warnings regarding breadth, high yield spread widening, and/or lack of broad-based participation, it looks like breakouts in AAPL GOOGL should help Technology show sufficient leadership to carry US stock indices over the next few weeks. At present, many of the momentum trades of recent months have begun to slowly unwind in recent weeks. While this doesn’t portend a rally continuing in any of these, the structure of this “risk-on” trade has begun to noticeably change in the short run. I expect this might bring about volatility next month, but for now, trends remain intact.

While bullish, I am sympathetic to the notion of a choppier trading environment over the next month before markets begin a more broad-based rally.

Despite AAPL, GOOGL, and NFLX having broken out yesterday, there proved to be a violent pullback in stocks like $NFLX, $MAT, and $TXN after hours, while Precious metals suffered one of their largest selloffs in years.

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