Sector Rotation Continues

Gary Kaltbaum is an investment adviser with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show "Investors Edge" on over 50 radio stations. Gary is also editor and publisher of "Gary Kaltbaum's Trendwatch"... a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary's Daily Market Alerts click here or call 888.484.8220 ext. 1.

Last week, I told you to be careful of the NASDAQ/NDX/TECH as they were now sitting near the all important long-term 200-day moving average. I also told you that consumer areas like RETAIL and RESTAURANTS were also in that same area. At the same time, I told you that COMMODITIES were now starting to complete 6-7 months of a bottoming process. All this was spot on as COMMODITIES soared last week while the NASDAQ labored. On Friday, NDX was up a measly 5 points while the DOW was up 165 points. I NOW HAVE A LOT MORE TO SAY.

I continue to believe TECH, NASDAQ, NDX, RETAIL and the like have hit a wall for now. That is not necessarily bad. It just means pullbacks are going to happen as they have now hit important resistance levels. It would be quite normal for these areas to rest for a few weeks as they build new bases. Digging deeper, I am watching the SEMIS quite closely here as they seem to not just be pulling back, but are showing possible toppy action. I will know more as they pull back toward support. SEMIS are under distribution, though at support now. BIG TECH has stalled...which is good and bad. Bad because it has stalled but good because they needed to. I also want to make note that some of the leading growth stocks in the market have been under distribution lately while major averages kept moving up off the backs of the COMMODITITIES and the FINANCIALS. Typically, this is not a good near-term sign.

Now...as far as COMMODITIES go, I would not be doing any more buying this second. OIL SERVICES, METALS/MINING, BIG OIL and many other areas have also now rallied into longer term moving averages. Again, this is a place where things tend to stall for a bit. The main theme for weeks was to play the COMMODITIES off the 50-day or on breakouts above resistance. With a 7 month bottom being completed...I would just kick back and let things pull back. Any pullback into support and/or moving averages is buyable as I believe COMMODITIES will go higher after any pullback. This also includes countries like CHINA and BRAZIL which are commodity-laden.

You may now start looking at the REITS. REITS look like they may move out of a trading range soon. If the market pulls in first, they will look good on any pullback to support. Look for names that have set up in bullish wedges or flat bases...with definable resistance. REITS joining the party would be normal as FINANCIALS have gone haywire to the upside off of the "non-stress tests." One note on the FINANCIALS...as I wake up this morning, I noticed a front page article on USA TODAY'S Money section talking bullishly about the FINANCIALS. Funny, I did not see that 2-3 weeks ago. Pullback soon?

Overall, I am looking, no, I am hoping for a pullback soon. Pullbacks set the market and stocks up better. It also puts doubt in the minds of the permabulls who missed the whole bear market and are in a lather for their "supposed" great calls of a bottom even though they called bottoms all the way down. This business remains full of charlatans.

Lastly, I repeat loudly. GOLD is now in the 14th month of a base. There is a case to probe here just above the 50-day...but the big case will be on a move above highs. The longer the base, the bigger the move. There are now a couple of stronger GOLD stocks...a couple at new highs and a couple of them are close. Stay on top of this. The last base GOLD broke out of was 16 months long...and once the break occurred, it moved up 50% in a hurry before the latest base was started.

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