Sector

The trading action over the last few weeks suggests the concentration in semi stocks is starting to reverse. Most have completed 50% retracements and are now near the bottom of trading ranges.

Small Cap could be a market leader. Sentiment is becoming frothy as well – this could lead to a September pullback.

Markets rallied at the end of July. Breadth has improved a bit. Small Cap indexes continue to trade well. Iran news is mixed, and market action could still be volatile.

Last July, we opined that XLV might have bottomed in the 130-area. XLV built a base near support in the 130 to 135-area. Accumulation on XLV remains positive and had a nice push up on the last advance.

Markets fell into early June but are set to rebound. Breadth has weakened as the last rally was very narrow. Small Cap indexes made new highs.

Tech has been everyone’s favorite overweight for a while, and because of this Tech has been overvalued. In spite of the last pullback it is still overvalued – but this is not all tech names, rather it is mostly in the MAG 7 and AI names.

Markets fell into April but rebounded earlier than expected. Breadth has improved. Small Cap indexes made new highs.

We still expect a decline into April to reset our monthly indicators. A strong yearend rally should follow.

The trading action over the last few weeks suggests the rotation out of tech is real, but obviously could change and we have to be open to new sectors showing strength.

It still looks as if equities will make a short to intermediate peak at the end of January/beginning of February.