Mike’s note: One quick note before we get to today’s Market Minute.
Tonight at 8 p.m., Jeff will be hosting a special event where he’ll be teaching his 18-year-old son Carson one of the most useful options trading techniques from his career… And Carson will try to double his money with just one trade.
Jeff will also be giving away a free trade recommendation to all who show up, so don’t forget to sign up here if you haven’t already.
Now, on to today’s market insight…
Here’s Where I’m Putting My Money Today
By Jeff Clark, editor, Market Minute
Extreme conditions have gotten even more extreme.
The stock market is trading at all-time highs. The technology sector is leading the way higher. And, financial stocks are noticeably lagging.
This divergence between techs and financials is unusual. It’s going to reverse at some point. Money will rotate out of the high-flying technology stocks that are trading at historically rich valuations and flow into “value” stocks that have not participated much in the market’s rally.
I thought we might have reached that point last month when the Technology/Financial ratio chart hit its highest level since the dot-com bubble burst back in 2000. But, as I mentioned above, extreme conditions have gotten even more extreme.
Take a look…
This is a ratio chart that shows the share price of the Technology Sector ETF (XLK) divided by the Financial Sector ETF (XLF). When the chart moves higher, tech stocks are outperforming financials. And, when the chart moves lower, XLF is doing better than XLK.
So far this year, XLK is far outperforming XLF – to a degree we haven’t seen since 2000. It’s not sustainable. It’s going to reverse. And, when that reversal happens, the move lower on this chart is likely to be as swift as the move higher has been.
In other words, you’re not going to want to own tech stocks. You’ll want to be in the unloved financial sector.
Despite my concerns over the health of the broad stock market, I’ve been slowly, and steadily putting money into the financial sector over the past several weeks. It’s arguably one of the cheapest sectors in the market.
Most financial stocks are trading at historically low valuations. And, the technical patterns appear to be turning bullish.
If we do hit a rough patch in the stock market over the next several weeks, money is likely to come out of the tech sector and flow into financial stocks. That could spark a pretty hard decline in many of this year’s best-performing stocks. And, it could spark one heck of a rally in the banks.
Best regards and good trading,
P.S. My 18-year-old son Carson knows almost nothing about the finance world, but now he’s betting his hard-earned money to try to double his money using options.
Of course, before he does, I’m going to give him a detailed “crash course” in trading. Once you see how easy it is to trade options, you’ll want to start yourself – and you’re in luck: I’m giving away a free trade recommendation you can use tomorrow morning.
In today’s mailbag, a Jeff Clark Trader subscriber shares how much they value Jeff’s trading insights…
I follow your moves more than most indicators… I’m really interested in seeing how it works out for your son Carson because I’m still learning a lot myself.
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].
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