What Happens When This Extreme Rotation Ends?

 | Dec 01, 2016 | 1:47 PM EST
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Stock quotes in this article:

XLF

,

QQQ

,

SMH

,

fmsa

The rotation in the market is becoming increasingly severe, with financials (XLF) running straight up and technology (QQQ) and semiconductors (SMH) heading straight down. Oil is doing a nice job of gaining additional momentum, but biotechnology is gaining traction to the downside.

It is very unusual to have rotations this extreme. It helps to create uncertainty and that puts stress on the broader market. The hot sectors help to hide the damage, but this is how stealth corrections tend to occur. This isn't so stealthy, as the Nasdaq is reflecting the selling, but if you look at just the Dow Jones Industrial Average, you'd never know there were any issues out there.

I've been carrying a pretty high level of cash for over a week now, as I've found it very hard to put money to work for long. Oil offered a good trade, but that is a shorter-term play that will require some positioning as the group develops further. One oil name I've been adding today is Fairmount Santrol (FMSA) , which is a supplier of sand for fracking.

The indices are hovering around intraday lows, breadth continues to slip and bulls are intently focused on financials and oils. The next logical step would be the reversal of the current rotation, but that is probably too easy. I expect that this rotation ends with a further correction in the indices.

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