Hey trader,
It was another wild week for stocks. Given the geopolitical events over the weekend, the market was clearly discounting something important.
Global tension could be cut with a knife right now.
Here's what most people missed. The Nasdaq was not the index down the most last week. It was the Dow.
That tells you everything about where we are in this cycle. I am going to show you exactly what the sector rotation is signaling and when I expect the turn.
Bears Hunker Down
Last week was peculiar. It was not the best week for bulls. But it was far from the worst week either.
This tells me the market is getting closer to its next big turning point. The price action is getting tighter. The sector rotation is screaming late-cycle behavior.
Here is what leadership looked like:
Utilities were the top-performing sector last week. The rally was so strong it reinforced its position as the leader over the past month too.
To be clear, this is not what bulls want to see near-term.
Growth sectors like tech, consumer discretionary, and industrials underperformed again. Nvidia's earnings did not help tech or semiconductors.
But evidence is building that a growth capitulation is imminent. The catalyst may have already hit with the strikes on Iran.
The Cycle Is Speaking
Energy is the top-performing sector year-to-date. This is a sector that outperforms in the late stages of the market cycle.
The Dow is three weeks into its decline. The S&P is five weeks into its decline. The Nasdaq is four months into its decline.
In other words, the right sectors have been leading at the right time given where we are in the cycle.
Utilities are traditionally a defensive sector. But we cannot overlook the evolved role they play with artificial intelligence. The theme has been written off lately, especially when it comes to mega-cap tech stocks.
The one-year leader continues to be industrials. This continues to signal growth underneath the surface.
The overall read remains the same. Long-term bull. Intermediate-term bull. Short-term risks.
What I Am Watching
I went back and looked at every correction since 2010. They all had one thing in common.
The turn happened when growth sectors started leading again. Not utilities. Not staples. Not energy.
Growth had to reassert itself.
If any growth sector starts leading this week, the odds of a market bottom will surge significantly. I am talking about tech, consumer discretionary, communications, or industrials.
That is the signal I am waiting for.
I am sitting on about 85% cash right now.
But let me be very clear about what this means. When I say I am positioned defensively, I am short with the intention of getting long.
The real dollar signs are on the long side once this market bottoms. I have seen this play out dozens of times.
The people who sit in cash waiting for crashes never make money on them. They are never positioned correctly when the turn comes.
The Bottom Line
This is not a bear market setup. This is a correction setting up the next leg higher.
The sector rotation is textbook late-cycle behavior. Utilities and energy leading while growth gets hammered. That is exactly what you see before a washout bottoms.
The Trinity Terminal has been picking up setups in the defensive sectors all month. Once growth reasserts, those signals will flip.
I expect this correction to bottom by mid-March at the latest. It could happen sooner. The catalyst could be anything from a Fed pivot signal to stabilization in tech earnings.
Positions matter more than opinions. I have mine on. Do you have yours?
Stay tuned,
Gianni Di Poce