The Power of Market Rotation
There was a quick bounce in tech stocks, but I don’t trust it to last. Meanwhile, I’m building a July shopping list.
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The market immediately bounced back from an ugly gap-down open on Tuesday. We still have losses in the major indexes, with the Nasdaq 100 (QQQ) down 2.3% and the S&P 500 down 0.9%, as I write. The DJIA is flat, and breadth is 56% positive.
What stands out is aggressive rotation into biotechnology (IBB), retail (RTH), financials (XLF), and a few of the Mag 7 names, such as Microsoft (MSFT). This is more rotational action than a broad correction, and that is probably the healthiest thing that can happen.
I am a bit disappointed that we are bouncing back so quickly, though. I was looking to buy some favorite names at lower prices. There doesn’t appear to be any real panic at this point, which is what will create the best opportunities. Unlike many market participants, I actively make plans to take advantage of poor action, so I welcome it when it does happen.
Building a July Shopping List
My game plan is to develop a shopping list of names that I expect will have positive reactions to earnings reports when they hit in July.
For example, some of the biotech names that I favor, such as Xeris Biopharma (XERS), Cullinan Therapeutics (CGEM), Delcath Systems (DCTH), Revolution Medicines (RVMD), and Harrow (HROW), should have good news when they report. They are already making sizable moves in anticipation of that dynamic. I am hoping to build those positions further, and a broad market selloff would be an ideal opportunity.
Stepping Away From Extended Tech
I do not trust this bounce in technology names. I do not see a good reason for the Mag 7 (MAGS) to go straight up from here. The semiconductor (SMH) group is very vulnerable to a selloff on Micron’s (MU) earnings, no matter how good those earnings might be.
I do not see much potential in chasing the group that is so extended at this point, regardless of valuation arguments. A lot of folks do not want to give up on tech, but the AI trade is shifting, and there is very good rotation into other areas. The easy money has been made in chips and data centers, and it will be tougher from here.
Maintaining Patience and High Cash
I am going to stay patient, and I have not done anything substantial so far on Tuesday. My cash levels are very high. I plan on some aggressive positions when I find the setups, but that is not going to be today.
Definium Therapeutics (DFTX), which popped 50% Monday, as I discussed, is a name I plan to be very aggressive on as it moves into the next data event for Generalized Anxiety Disorder in the third quarter. The stock is trading very solidly Tuesday despite the announcement of a secondary offering.
Rotational action like we are seeing favors stock pickers with shorter time frames, which is my forte. The key now is finding the best new setups that are developing.
Position: Long DFTX, XERS, CGEM, DCTH, RVLT and HROW.
