With the broad market indices such as the Dow Industrials and S&P 500 hitting new multi-year highs, one would reasonably believe that the advance has further to travel and riskier and riskier positions taken. However, when we look underneath the hood, we find rotation taking place towards more traditional �defensive positions�. This suggests market participants are skittish about the lagged effects of the past 2-year Fed interest rate hiking campaign, and are moving to decrease their beta exposure.
Our case in point relates to the ratio between the Pharmaceutical Index ($DRG) and the Semiconductor Index ($SOX). We find multi-year support has held, and our momentum oscillators are trending higher � thereby suggesting movement towards higher levels in the months ahead. Therefore, we extrapolate this onto the broader market and hence look for prices to weaken towards a more traditional �mid-term election year� October/November bottom.
