Both REITS and Utilities have gotten appealing - Top picks for each

Trends for Equities remain upward sloping based on Equal-weighted SPX, but the underlying volatility across Equities has picked up measurably despite no true underlying trend in SPX since last October’s close.   Positives include the NYSE and SPX Advance/Decline line having recently pushed back to new highs, along with the continued mean reversion higher in sectors like Energy, Materials, and Consumer Staples. Defensive positioning has grown stronger in recent weeks as sectors like REITS, Telecom, and Utilities have now started to join the push higher in Consumer Staples.   However, the bifurcation in Technology has proven stunning lately, with severe weakness in Software, while stocks like $WDC, $STX, $SNDK have continued to scale new heights.  Moreover, it’s the weakness in “Mag 7” which has caused Technology to fall out of favor and has resulted in SPX breaking down from multi-year uptrends vs the All-Country World index.   While it’s difficult to consider that trends are changing, barring an actual breakdown in intermediate-term price trends and breadth gauges (which hasn’t happened), there are a plethora of advance warning signs that are starting to crop up, which are important to pay attention to at this stage of the rally. Overall, I am expecting a choppy push higher up to the 7100-7200 area, but feel like the upside should be limited to around 3% higher.  Meanwhile, any drop under early February lows at 6780.13 would serve to turn trends negative, and this remains arguably the “line in the sand” for trend followers.

Thursday’s trading showed similar signs of the same type of rotation we’ve seen in recent weeks:  A heavy push into defensive areas like Utilities and Consumer Staples, while Software and Financials weakened sharply.  Incredibly enough, Technology fell over 1.25% despite $STX, $WDC, and $SNDK all gaining more than 5% on the day.

Overall, I don’t consider Thursday to represent any sort of meaningful breakdown.  Until/unless 6780 is violated, which approximates February lows for $SPX, trends remain intact, despite being quite choppy with volatile price action in many sub-sectors.

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