The rotation out of tech started last week, and it appears to be a continuing theme for the market in the short-term.  Earnings may drive some of the short-term sector decisions, but ultimately, there are long-term themes being priced into the market based upon election projections and other fundamental inputs that are likely to determine the major sector-based money-flow.

As I review the markets, I look back first to the idea from last week, which was long positioning in Nordstrom’s (JWN):

As can be seen, JWN took off starting on July 11th as the Anniversary Sale timing along with CPI data and presidential odds all seemed to coincide perfectly to aid JWN in a significant rally.  The sector rotation we have seen simultaneously out of the tech market is easy to observe with a chart of QQQ:

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QQQ took a major dive on July 11th but found support at the 10-Day Moving Average.  Where it goes from here is still a bit of a mystery that is yet to be determined by the technical and fundamental investors in the market.  While currently testing the 10-Day Moving Average again, the upward trend in tech is still present for now.  But that can change quickly with just a little bit of downside movement, particularly if the big tech names and/or semiconductors start to show bearish price action.

Completely changing gears away from tech, I am looking for a sector that is showing signs of bullishness throughout this market rotation, and that leads me back to the oil sector.  First, let’s note how OIH has performed:

OIH is clearly experiencing a spike in the oil sector rally.  This ETF is certainly outperforming the more stable oil companies that we normally see lead the rally, via ETF XLE:

XLE is now above the 100-Day Moving Average, and this is the exciting part for me.  It allows me to dive into the energy companies that traditionally lead rallies in the oil industry.  For me, one that I’m looking at closely is COP:

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While there are many names that have similar technical setups, COP is interesting as it tends to hold trends for a long period when the money flow is in (or out) as we can see in the bullish trend from mid-March through mid-April and the bearish trend from late-April to Mid-June.  If I can catch a new trend now that it’s testing highs of the consolidation period that followed that bearish trend, and I can get in on the early side, I can do so in a leveraged manner.  Earnings are traditionally a smaller event on a relative basis for many of these energy companies, as well, so I don’t have to be as hyper-focused on the upcoming earnings date, and I can still get good leverage with implied volatility near 6-month lows.

There are many other energy companies and other sector names in my Outlier Watch List, so if you’re looking for more names like this, make sure you check it out!  With the list, I show how these technical signals can be leveraged in various underlying stocks.  So, make sure you check out my Outlier Watch List, where I give a long list of stocks I’m considering for bullish and bearish entries via options.

And as always, please go to http://optionhotline.com to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades.  And if you have any questions, never hesitate to reach out.

Keith Harwood

Keith@optionhotline.com