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November, 11 2020

Chart Advisor | Focus on the Price, November 10, 2020 Headlines

By Gordon Scott, CMT

Tuesday, November 10, 2020 Headlines

1. Mixed returns as investors rotate away from big tech
2. Energy sector surges ahead
3. Both US and Chinese oil companies benefit

Market Moves

The major stock indexes closed with an unusual mix of performance. The Dow Jones Industrial Average (DJI) uncharacteristically outperformed both the Nasdaq 100 (NDX) by a wide margin and the S&P 500 as well. This movement suggests professional investors are moving their money away from tech sector stocks and into industrial companies, likely seeking to benefit from an expected wave of aggregate demand.

 

This is the second day that evidence of this sector rotation can be clearly seen in the price action. The chart below compares three stocks, each one a representative component of each index. Boeing (BA), Ford (F), and Amazon (AMZN) typify the day’s changes in each index. Chart watchers should not infer from this price action that Amazon won’t be expected to make money going forward. Instead, investors are likely to believe that industrial companies may make faster gains in the weeks and months ahead. Of course, the only way that could be true would be for the world’s economy to kick back into high gear in short order. Is that what investors, collectively, expect to happen?

 
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Energy Sector Surges Ahead

If investors sense a coming wave of consumer demand in the months ahead, then this sector rotation should be a bit broader than two days of rising oil prices. The chart below seems to show that it is in fact broader.

 

State Street’s Sector index ETFs for Energy (XLE), Finance (XLF), and Basic Materials (XLB) are leading all others right now. Lagging, unsurprisingly, is both Technology (XLK) and Consumer Discretionary (XLY). This kind of broad and persistent move may signal that this trend has a way to go before it is done.

 
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Read more:

The Best (and Only) Dow Jones Industrial Average ETF for Q1 2021

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Disney Earnings: What to Look For

Both U.S. and Chinese Oil Companies Benefit

This sector rotation appears to be favoring not only U.S. based companies in the energy sector, but non-U.S. based companies as well. The chart below shows a comparison of two portfolios. The first is an equal-weighted mix of three U.S.-based companies, Exxon Mobil (XOM), Enterprise Products Partners (EPD), and Schlumberger (SLB). The second is an equal-weighted mix of three China-based companies: Sinopec Shanghai Petrochemical (SHI), Petrochina (PTR), and China Petroleum and Chemical Corp (SNP). Both portfolios are doing well, suggesting that investors are not worried about political policy changes that might shift opportunity from one world region to another. They simply expect more demand for resources overall. That’s quite bullish!

 
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The Bottom Line

Stocks showed mixed performance with tech companies falling while blue-chip industrial companies rose in price. The energy sector seemed to be the biggest beneficiary. Investment dollars appear to be chasing both domestic and international opportunity as well.