Hey trader,
Stocks finished last week right at their lows as the tech wreck rolled on. Underneath that selloff, an AI trade rotation was quietly taking shape.
Several mega-cap tech names posted ugly reactions along the way. I always say some stocks and some sectors matter more than others. These are the names that matter most to the major indexes.
Last week, I said the bulls had been knocked down onto the mat. The ref is now late in the count and close to delivering a knockout.
A late count still isn’t a finished fight. Some of the strongest money in the market was buying last week while everyone else ran for the exits.
That leaves one big question hanging over the market. Traders want to know whether the AI trade is dead.
I don’t think it’s dead. It looks to me like it found a new flavor.
One corner of the market quietly picked up the AI baton while tech bled.
Once you see where this AI trade rotation is headed, you’ll know which stocks deserve your attention this week.
Another Epic AI Trade Rotation
|
Performance Leader |
1-week |
30-day |
YTD |
1-year |
|---|---|---|---|---|
|
Sector |
Healthcare (XLV) |
Healthcare (XLV) |
Energy (XLE) |
Energy (XLE) |
Energy (XLE) still owns the longer timeframes. Healthcare (XLV) has taken over the short-term spots.
Rotation simply means money leaving one group and moving into another. This AI trade rotation is pulling money away from chips and toward healthcare.
Capital doesn’t vanish when tech sells off. It goes looking for a new home.
Healthcare was a shining star while the growth sectors bled last week. XLV broke out to a new all-time high and rallied more than 3%. The Nasdaq dropped 2% over the same stretch.
That’s more than a 5-point spread in a single week. Leadership doesn’t get much clearer.
A breakout to a new all-time high during a broad selloff carries extra weight. Buyers had every excuse to sell. They bought healthcare anyway.
Biotech Leads the AI Trade Rotation
One specific piece of healthcare has my attention more than anything else right now. Once this volatility passes, I expect it to be the tip of the spear for the AI trade.
That piece is biotech. I wrote about it extensively over the summer.
Biotech is starting to cement itself as a leader of the AI trade. The NYSE Biotechnology Index finished last week up 3.45% while much of the market cratered.
That’s Relative Strength 101. A group that rallies while everything around it falls is showing you where the big money wants to be.
That’s how an AI trade rotation shows up on a chart.
Biotech makes sense as the next home for AI money. Drug discovery and clinical research are some of the most data-heavy work in the economy. AI is built to speed up exactly that kind of work.
The AI trade rotation comes into focus when you compare biotech with the groups that carried the AI story all year:
- Semiconductors have been decimated since their June highs.
- Software is holding up a bit better, though it isn’t leading.
- Healthcare and biotech are pulling in the money that used to chase chips.
Chips and software were the AI stories for most of the year. The flows now say the market is starting to appreciate healthcare and biotech as the new leaders.
The bears writing obituaries for the AI trade are missing the AI trade rotation right in front of them. AI money is still in the market. It just changed addresses.
Why This AI Trade Rotation Sets Up 2027
My watchlist reflects the shift. I’m seeing an overwhelming number of individual setups in healthcare and biotech right now.
The rest of the market has a lot of work to do. That’s especially true on the growth front.
Selloffs like this one feel brutal while you’re in them. Drawdowns are still a normal and healthy part of every bull market. They shake out weak hands and reset expectations for the next leg higher.
Positions matter more than opinions. My positioning follows the strength.
Right now, the AI trade rotation has put that strength squarely in healthcare and biotech.
There’s a silver lining in all this. The volatility in tech is setting up another huge opportunity heading into 2027. It’s just a matter of waiting out the storm.
Here’s how to use the AI trade rotation this week. Before you buy any tech dip, check how that stock held up last week.
Names that closed near their highs while the Nasdaq dropped 2% are showing real strength. Stocks that broke down alongside semiconductors can wait until the storm clears.
I’ll keep you posted.
Talk soon,
Gianni Di Poce
