Sector Rotation & Window-Dressing Amidst Trump’s Cabinet Toss-Up.

November 16, 2016
By Vlad Karpel

The post-Trump effect saw broad gains in sectors which would ostensibly benefit from his administration’s new fiscal policy and public works spending. However, the year is drawing to an end and institutional investors will begin their window-dressing activity before reporting to shareholders. As an example, financials are now slightly overbought and starting to sell-off. Those funds will likely rotate into sectors hit by the political news. We can expect to see a slight rally for tech stocks and ETF’s in the near future.

It is important to note this type of cyclical market behavior; understanding these trends and acting accordingly will save traders from the unnecessary stress of chasing markets. To this point- today’s market sees previously oversold sectors- vulnerable to interest-rate hikes- starting to bouncing back. Although month-to-date movement is still negative, sectors like telecom and utilities gained 2.1% and 1.7% today, respectively.

Major Indexes

Futures set the tone for markets today. Dow futures dropped 0.2% to 18,840, S&P 500 futures dipped 0.3% to 2,173 and Nasdaq-100 futures also saw a 0.3% loss to 4,752.25. This can be seen as the markets’ attempt to grapple with the new presidential agenda after the initial excitement. Although the overall vitality of major indexes is reflected in record gaining streaks, slight drops today strike a balance. DJIA is currently trading at 18856.74, a dip of 0.35% from Tuesday’s record high. S&P 500 shed off 0.22% and is currently trading at 2175.64 . The Nasdaq, however, is climbing 0.23% and currently trading at 5287.83. This may be attributed to the aforementioned sector rotation and window-dressing, as the Nasdaq is saturated with tech stocks.

Trump’s Cabinet Gestation

Markets are reckoning with a double-edged sword in a Trump presidency: a spend-heavy pro-business sentiment against politically-fueled protectionism which could disrupt the global economy as a whole. Reince Priebus as Chief of Staff is reassuring to those worried about the mechanics of Washington breaking down. Steve Bannon as ‘Chief Strategist’ is outright frightening to many, although the position looks like a placeholder title meant to appease Trump’s newly acquired right-wing constituency.  

The next appointment is appearing to place Rudy Giuliani, the former New York mayor and fiercely loyal Trump confidant, as Secretary of State. He is already making press rounds, mitigating backlash from the Bannon appointment. When pressed about assertions of Bannon’s racism and anti-semitism at a WSJ panel discussion, Giuliani parroted Priebus’ message by claiming he ‘has never seen any of that’. He also regurgitated Priebus’ follow-up attribution of Bannon’s high intelligence and patriotism. His final remarks about the political operative drifted into the storied forming effect which the Oval Office has on newcomers. Giuliani was implying it will dampen the alleged overt racism and prejudices- characteristics which he had just denied exist in Bannon.

Technology Rebound

Microsoft (MSFT) and Verizon (VZ) can be looked at as bellwethers of a tech rally, with Microsoft up 0.74% to $59.30 and Verizon up 0.2% to 47.46. The Technology Select Sector SPDR Fund (XLK), which oversees 13.12 B in net assets, is climbing 0.77% at $47.03. This tech ETF includes global names like Apple (AAPL), Microsoft (MSFT), Alphabet Inc. (GOOG, GOOGL), Facebook (FB) and IBM (IBM).


Gold is rebounding slightly after a sharp selloff due to dwindling market uncertainty. The safe-haven metal is up 2 points, or 0.16% at $1226.20 today. We can expect gyrations to occur, as gold is intrinsically tied to the US dollar, which in turn will reflect economic outlook due to political news. Using SPDR GOLD TRUST (GLD) as a tracker in our Stock Forecast Tool, we see a mixed vector reading in the 10-day outlook. It is currently trading at 117.09 with today’s support at 116 and resistance at 118.03. The standard deviation today is 0.39 on both ends. Our models show 10-day resistance on a downward vector with figures dipping as much as 4% to 112.47 at the end of the prediction window. The model currently shows support dropping from 116.27 to 110.79. 




The CBOE Volatility Index (VIX) looks poised for a rebound. It is currently trading at 14.25 on a predicted 2% intraday downward vector. Our 10-day prediction model shows a consistent positive vector ramping up from ~1% into figures like 11.35% within a week. Resistance is predicted to from ~15 to ~17 in that same period, support still trailing between ~13 to ~15.  




Crude oil has been rallying ahead of a November 30th meeting of OPEC members, who are reportedly having trouble striking a deal to alter production and raise prices. As a precautionary measure, there was a 0.6% jump today and the price per barrel is currently $46.07. Looking at USO, a crude oil tracker, our 10-day prediction model shows slight downward momentum with a Nov. 24-25 reversal.  The fund is trading at 10.355, up 0.15% from its open, with intraday support at 10.155 and resistance at 10.46. The predicted resistance stays between 10.3 and 10.45 during the downward phase, then climbs to 10.58 with a 1% positive vector pickup. Predicted lows are contained between 9.90 and 10, but breach to 10.08 at the end of the prediction window.



In other news

A swath of aviation stocks, including American Airlines (AAL), United Continental Holdings (UAL) Delta Air Lines (DAL) and Southwest(LUV) are getting boosts from recent stock purchases by Berkshire Hathaway (BRKA).

Target Corp. (TGT) and Lowe’s Cos. (LOW) both reported earnings in pre-market hours, leading to early action. Target saw a 6% increase as earnings beat expectations and profit guidance rose.  Inversely, Lowes dropped 6% as earnings underperformed and guidance was slashed. The loss has been attributed to decreased traffic between August and September.

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