A Day of Rotation to End the Week

Corrective action in large-cap technology stocks continued for a second day on Friday. Nvidia NVDA and chip names were the primary problems, but the selling has been fairly mild. The Nasdaq 100 (QQQ) lost 0.3%, while the S&P500 was down 0.5%.

The good news was that there was some rotational action into biotechnology and some small caps that helped to shore up breadth which was around 4100 gainers to 5100 decliners. New lows of 230 exceeded new highs of just 140 names.

The topping action in big-cap technology coincides with growing concern that an economic slowdown is starting to gain traction. Bonds (TLT) rallied early in the day but closed flat as more money rotates into something that may be a bit safer than big cap names with aggressive valuations.

There is some economic news next week, and the Presidential Debate next Thursday will be of interest, but it is going to be a quiet period for another three weeks as we await second-quarter earnings.

The primary question on my mind is whether there will be an acceleration of the rotation out of technology and into other areas of the market. Several strategies have been used to anticipate a small-cap rally, and if there is economic slowing, it may actually help that group perform better.

It is a tough trading market right now, but there are some opportunities developing if we are patient.

Have a great weekend. I’ll see you on Monday.