Sensitivity At Market Highs: Weekly Nifty 9

Research Report Excerpt #1

Which sector will lead the longer-term trend? Sector and style rotation has remained a dominant theme in 2021, but investors shouldn’t get too bogged down by this debate, missing the forest for the trees. It’s this constant style and sector rotation, this leadership, and laggard-ship that may be making it that much more difficult to evoke a greater correction/consolidation period.  The fact remains that a rising tide is lifting all boats longer-term. I think the best way to visualize this is in the following 35-day chart of sector performance.

We’ve definitely seen a shift since late February/March in sector performance. What had been working was the reopening trade/cyclicals/value, but what has taken over leadership since has been defensive and that which was lagging, Staples, Utilities, Health Care and Real Estate. Nonetheless, most everything still delivered positive returns over this time period, shy of Energy. The main point is to pick good stocks, recognize that sector rotations are likely to continue, but know that if the fundamentals of the stock are strong while the stock’s sector is underperforming, eventually the laggards will come back to life in a bull market.

Research Report Excerpt #2

There are some key seasonal and analogue-type collisions occurring into May that investors should heed. The consideration, in my opinion, is one that fashions GAME PLANNING. Let’s first look at our trusted (to-date) 2009/2010 – 2020/2021 S&P 500 analogue.

At the end of this past trading week, the S&P 500 was ~9% above where it is indicated in 2010. In the coming weeks, the S&P 500 embarked upon the initial leg of its major price consolidation, which was set off by the May 6th Flash Crash in 2010. While mechanisms were put into place post the 2010 Flash Crash to avoid such an occurrence in the future, it’s still incumbent upon investors to recognize current valuations and price will likely prove very sensitive going forward and through the analogue’s offered corrective period. I think this sentiment was proven this past week on Thursday, and when the Biden tax proposal plans were leaked out by the media.

Research Report Excerpt #3

What I’ve learned over my 22 years of investing and trading is that if I position for short-term potential, but with long-term fundamental/technical strength, I’m doing so with a win-win mindset. I may be positioning with a desire to achieve a near-term profit, but if it should prove disappointing, the long-term fundamentals/technicals offer an opportunity to increase my exposure to the trade, and benefit longer-term by an even greater profit. It’s a win-win. I tend to look at the market through that lens and using both disciplines.

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