As Tech Stocks Sell Off, PreMarket Prep Breaks Down This Sector Rotation

Why? If you had tuned into the top of Wednesday’s PreMarket Prep Show, the day's market action might make more sense.

What we discussed: a profound rotation is taking place in the markets.

In other words, if money managers are selling out of technology stocks, they are buying other stocks that have better fundamental or technical setups.

In addition, sophisticated, high-frequency trading algorithms are constantly buying and selling liquid components of the major indexes and ETFs and raking it in on simple arbitrage strategies.

When It Started: PreMarket Prep co-host Dennis Dick was alerted to a change in sentiment in early after hours trading Tuesday following the Microsoft Corporation MSFT and Alphabet Inc GOOGL GOOG  earnings reports.

“They were hammering tech and started buying and started buying a lot of other stocks — you could just see it happening,” he said. 

“My strategy for the overnight session was simple: selling technology stocks and buying value stocks.”

He rattled off several sectors that were unchanged or in the green with the futures in the red.

They included bank stocks, energy stocks, cruise lines, airlines, casinos, staples, cyclicals and the iShares Russell 2000 ETF (NYSE: IWM).

Of the 200 stock he mainly follows, Dick said on Wednesday's show that almost half were in the green. 

With the S&P 500 index 30 handles in the red, he boldly concluded: “I would be not surprised if the index went green at some point.”

Short Or Long-Term Trend? The author of this article posed the question of whether this is a one-off occurrence or the domination of technology stocks over the last decade is going to subside.

Dick responded: “You could very well be entering an extended period of time, when all the value stocks that underperformed over the last decade are going to play catch-up.”

The value stocks picking up and technology stocks waning could have the effect of holding the S&P 500 up, he said. 

As of 11 a.m. EST, the S&P 500 index futures were in the green by eight handles, erasing what was a 46-handle decline at the premarket low.

The S&P 500 ultimately lost 0.74% Wednesday, closing at 3,830.60.

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