Who’s Ready For Some Rotation?

• stevenplace
• May 29th, 2011

Watch Under the Surface

Since the beginning of the year, the market’s have been  in a choppy, range-bound, mean-reverting environment. Under the surface we’ve seen a stealth “flight to safety” trade in which risky high-beta names have sold off in favor of more defnsive areas such as consumer staples, healthcare, and utilities.

On top of all this, we’ve seen continued strength in the long bond, potentially signalling more “risk-off” concerns as well as lessened expectations for inflation.

I think that this trade is oversubscrubed (still), and we’re due for a move back into higher beta, cyclicals, and a breakout in the equity markets.

This thesis, of course, still hinges on the currency market, the carry trade, and whether the dollar can sustain further weakness at these levels. If it can’t or the euro sees more weakness due to debt concerns, then it’s very difficult to make a good “risk on” thesis.

In this episode of Stocktwits Brunch, we Discuss

• Potential upside targets for the $SPY assuming the intermediate term bottom holds
• How the rally in defensive stocks is oversubscribed
• The price action in copper and whether it can continue to be a leading indicator
• Relative strength in the Aussie and what it means for commodities and equities
• The “skepticism” trade that persists even though the markets haven’t changed in trend
• Why the $LNKD options market is way too bearish right now
• The Stocktwits 50 and individual requests from the stream

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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