You are currently viewing Markets Unlocked 1/17/23: Rotation to start the year

Markets Unlocked 1/17/23: Rotation to start the year

The week ahead is a shortened holiday week (Monday close), but we’ve already gotten a little insight into market tone for the new year.

Perhaps the most striking element is the handoff of strength from mega caps to smaller caps. Late in 2022, the DJIA led at every rally and was much stronger on every decline. So far, this year, the Russell 2000 stocks have shown standout strength.

We can also see a bit of sector rotation. The chart above comes from our Talon Advisors work (available completely free of charge here.) The vertical axis shows performance over the past year; here, we can see Energy stocks (e.g., XLE) standing well above the pack with clear leadership over longer swings. However, several other sectors are showing recent strength, and can be seen moving toward the right edge of the chart. (The X-axis shows shorter-term strength.)

This is also a picture of a market that is not in a defensive mode–note the defensive Utilities, Staples, and Healthcare lagging the group in the short term, in almost textbook fashion. While there is probably nothing predictive here, it’s a confirmation of what is already obvious on daily price charts.

In terms of price dynamics, we see a mix bag. Bulls eroded potential short setups in major indexes, but we do not yet see enough strength to justify being near-term bullish (for anything but short-term swing trades.) Longer-term, bearish overhangs remain strong.

The week ahead (potentially market-moving data releases)

Monday: US Holiday

Tuesday: Empire State Mfg

Wednesday: Retail Sales, PPI, Industrial Production

Thursday: Jobless Claims, Housing Starts, Philly Fed

Friday: Existing Home Sales


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.