Today the name of the game is pretty much buy anything at any price, as long as that anything is not technology.
Look at the sector funds this morning. Homebuilders were up more than 3%, retail 2.5%, materials 2%, staples more than 1%, even the regional banks. Airlines were up almost 5%, and that one makes sense, because oil is getting crushed.
The rest? Give me a reason the financials are going up, other than that there are more buyers than sellers.
Banks Are Rallying On Almost No Volume
The financials were up almost 2% this morning. Now think about this for a second. The bonds are up, which means interest rates are effectively down, and lower rates usually hurt the banks.
There’s no footing behind this move. Goldman Sachs is a $900 stock, and by mid-morning it had traded about 250,000 shares.
Bank of America, a $50 stock, had done 5 million. These are nothing burgers.
Moves can happen in a thin market. Price is price. But these rotations are nothing more than some light capital management, money shifting into a corner and hoping nobody notices. They’ll never find us in here.
Toilet Paper Is Trading Like A Tech Stock
The staples are even wilder. XLP, the consumer staples fund, is what we call low beta, meaning it’s supposed to move about half as much as the S&P. Over the short term right now, it’s moving more than the S&P.
Look at Procter & Gamble. It went from about $145 to $165 in roughly two and a half weeks. The expected move, the range the options market prices in, is about $22 over the next 227 days, and P&G covered most of that in less than a month.
Nobody cares about valuation right now. They care about where they can hide.
Homebuilders are the same story. With rising costs and rising interest rates, they’re up on nothing but a rotation.
You Never Hit One Of Them
I’ve said it before, and you’re going to hear me say it again and again. You never hit one of them. You’re going to hit them all.
During the financial crisis, everybody watched the banks get killed and started buying gold, until gold started selling off too. When the Nasdaq crashed in 2001, people rotated into Dow stocks, until everything went.
That’s why the financials worry me most. If correlation picks up, meaning everything starts selling together, the XLF probably gets hit harder than almost any other product on the screen, outside of maybe a few tech stocks.
So before you chase any of these rotations, check two things. Look at how many shares are trading, and look at how far it’s already run against its expected move.
If it’s already covered a move the options priced for months, you’re paying up to hide.
To your success,
Don Kaufman
P.S. Binance is the biggest crypto exchange in the world, and it still lost $6.3 billion. If you trade crypto, think about doing it through one of the big traditional brokerage firms, a $100 billion-plus company with much better backing than the crypto exchanges. The whole reason people got into crypto was to be decentralized, and as soon as everybody came back to a central exchange, look what happened.
