Rotation or Sea Change?
There is no question that in 2023 technology reigned supreme. After a strong run, a well-deserved rest is in order. But looking at this performance chart since the start of the late October rally, notice that there is some mean reversion as most of the groups that were firm in the top half of the chart are sloping lower, and vice versa with the laggards starting to catch up. And among the laggards are “defensive” spaces for the most part with utilities, healthcare, and energy. Is the old debate of “value versus growth” going to start percolating again? The ratio chart shows just how strong the VTV has been against the VUG, but notice we have seen this story before the last 6 months and each time it resolves lower in growth’s favor. That is why I still am giving technology the benefit of the doubt here. But bulls must acknowledge the weakness of tech against the other 10 major S&P sectors over the last one-month period, being dead last. Sure it has gained, albeit barely, but this action looks like the pitcher batting in the 9 hole in the former National League, an automatic out. One can make the argument that tech weakness this week commenced with those selling the magnificent 7 to avoid paying taxes until the end of 2024, but the shortcoming started at the beginning of December. The Nasdaq lost its 21-day EMA which is now sloping lower, but bulls need to make a stand at the former bull flag breakout above 14400, about 1% lower from here.