Broadening Risk Rotation

How rolling corrections are managing risk while strength broadens out

The Bottom Line

Price action has sent us a clear and unmistakable message: stay prepared for a more volatile year with wild swings. Be flexible enough to see opportunities in areas where you are not accustomed to looking. Be more careful chasing hot rotations, as they can shift quickly and often for no readily apparent reason.

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Price Action

The first week of February experienced increased volatility.

With bookend strength last Monday and Friday, the S&P 500 closed the week with a -0.1% loss.

After breaking the lower wedge line, price tested the 100 day moving average, a level of trailing support last tested in November, as well as its January low last Thursday. This key support area was defended, followed by Friday’s nearly +1.97% reversal.

With price closing back above its October high, this year’s breakout is barely alive and in need of strong and sustained follow-through to overcome what increasingly resembles a developing bull trap between S&P 6800 and 7000.