In last week’s Sector Watch report, I discussed how the market was at an inflection point.
Numerous areas of the market, like technology, were sitting at key support levels. A breakdown at these levels would likely begin a new and larger downtrend in growth stocks.
Fortunately, it seems that these key support levels are holding, and the market is starting to rotate back into growth names.
This rotation is important to watch as today is day two of the FOMC meeting, and, hopefully, we should get better insight into the Fed’s plan for tackling persistent inflation.
The Rotation Is Starting To Rotate
As we head into the meeting, this is where the sectors within the S&P 500 index currently stand:
The rotation that has favored non-tech stocks looks to be in the early innings of reversing, as the non-tech sectors are showing signs of weakening momentum.
Technology’s momentum is slowly starting to improve as the sector managed to hold a key support level and reverse back above the daily Ichimoku cloud:
Semiconductor Stocks
At the same time, semiconductor stocks, which make up approximately 43% of the technology sector:
Source: State Street
…managed to reverse back up from a key support level:
While semiconductors (SOXX) are still trading below the cloud, this is an important move in the right direction.
If investors start moving back into tech, we may see an aggressive move in semiconductor names, as the subsector fell nearly 30% from its June high.
Software Stocks
Software (IGV) is the second-largest weighting in the technology sector and has been moving higher since April:
Currently, IGV is approaching its all-time highs. A breakout above these levels, combined with clearing cloud resistance by semiconductors, will be a good indication that the market is rotating back into tech.
Financials and Health Care
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