WEEKEND REPORT

~When it comes to markets, our favorite line is “when things change, we will let you know!” There are times where the changes are subtle and there are the times the changes smack you right in the face. Maybe, possibly, could be, we got a little bit of a smack in the face on Friday.

~For months, we have been telling you our favorite groups were tech/internet/semiconductors with the bigger cap names getting all the headlines. You pretty much know all the names because the majority has been talking about those names recently as the noise got louder. Think FANG or FAANG or whatever other acronym people have come up with.

~What happens this past Friday? Just about everything in those areas had either massive volume reversals or  massive volume drops off the highs. To us, it felt like someone took the pin and popped the balloon. Keep in mind, these areas have been going up, up, up with nary a correction…which is out of the norm. These areas have been extended and stretched to the upside from the norm. Corrections were way overdue. Corrections are usually more harsh when the trade becomes so one-sided…thus we think at the very least, a good short-term top and maybe even more occurred on Friday. Keep in mind, tops do not usually happen in a day. They are a process. We think Friday was just a loud shot across the bow and suspect we are now going to see some violent backing and filling but ultimately we are going to see some time and price for a while. Keep in mind, this has nothing to do with a year from now, two years from now and beyond. We don’t go farther than what our headlights see.

~Often when big leaders top out, it is bad for the market. But not so sure right now. The jury is still out for us. We say that because while the leading areas were hit, other areas look to be coming to the fore. In other words, rotation out of a few areas and into a few other areas. For instance:

~We see money flows coming back into the financials. On Thursday, we thought they were holding very important support. On Friday, we think the low was confirmed as a few names like Citigroup (C) are actually moving out of long, 6 month trading ranges.We will know in time whether they can get legs as there are only a few names that look good to us. On top of financials, we are seeing flows into utilities, a bunch of Dow names (thus the out-performance Friday), about half the REITS we watch (the other half is gross), insurance, investment management, beverages,  and several biotechs. Speaking of biotech, watch $302 for the IBB and $72.60 for the XBI. A move above for both would be major breakouts to the upside.

~Central bank noise, more testimony on the hill and who knows what other surprises from Washington this week. Can’t wait!