NFTRH; Post-Election Leaders Pull Back as Expected, ‘Inflation Trade’ Gets a Restart

The post-election pop in market leaders like the Semis and Small Caps is easing, as expected.

In fact, the Semis are flat out dropping hard to what could be a ‘buy’ area if not for the negative SEMI bookings data.  Considering that data, I am not in any hurry to buy that sector again until more clarity comes to markets.  Our theme has been that the time to buy was last spring, when Semis were hated and that of late, the momos were pumping it on pure greed.

If I am being too wimpy because of the SEMI data, a technical buy area on the SOX is at 820 to 830.  But again, I found it much easier to buy in the spring as opposed to now.


If I don’t like the Semis, I doubly don’t like the Small Caps at this time because the momentum was even stronger and it sure did seem like ‘dumb money’ aggregates were buying it hard on Trump mania.  No thanks.  1240 to 1260 is the place to buy if you are a bull on the stock market in general and Small Caps in particular.  I am not at this time.


The TIP-TLT ratio (bottom panel) is taking another lurch higher, conveniently right into the FOMC’s interest rate hike on December 14th (at least they had better hike or lose what credibility they have left).  DBC, on a combo of rising inflation expectations and OPEC, has rammed right up to resistance.  A break and hold above 15.60 targets 17.  This goes well with yesterday’s energy sector update I guess, since oil is driving much of this.

dbc and tip-tlt ratio

Bottom Line

As noted over the last couple of weeks, I am in selling mode, not buying mode.  While adding or trading a couple things here and there, the sales – whether to take profits or limit losses – have far outweighed them.  Ousted for profits, large and small this week have been CYNO, CRY, PFE, CVS, SIMO and AAXJ with losses (sometimes you’ve got to love taking them, in order to limit them) in BSX, FB (nice profit turned to a loss; frustrating) and SWKS.

The sentiment backdrop got over bullish by dumb money and they are not the crowd to be running with when the momo starts to fade.  The market’s big trends remain up and the remainder of 2016 may still be bull biased.  The question I have and would like to form an answer to is… was the recent post-election over-bullish surge by dumb money enough to terminate the bull or is a bigger suck-in yet ahead?  For now I am in patience (and cash raising) mode and giving the bull the benefit of the doubt (and trend).  That could paint this pullback in the markets as a re-buy opportunity, but again… the sentiment backdrop is a key.  We’ll continually evaluate going forward.

As for the ‘inflation trade’, that seems to be where the momentum is shifting; energy mainly.  We looked at positive technicals on XLE yesterday, but my concern remains that it is merely news-driven momentum seeking out the next hot play.  Same goes for interest rates, by the way.  I am going to let the ‘inflation trade’ breathe for a bit and keep to my stated goal, which is to protect the majority of 2016’s gains.