Where should money be now?

I have been talking about the market risks for too long and I'm not sure I can add much of anything new now. So let me just share with you another writeup forwarded by my friend. It is said this one is from a very successful veteran trader who retired at age of 42 by trading options only. Needless to say he is very keen about risk/reward and sensitive about the market risks. Per my friend, this trader has been warning about a sizable correction for quite a while already and is increasingly piling up his cash load waiting for a right moment to go long again. Now he is sharing one sector that he thinks is one of the best places to put money into now.

Though I know most people don't like to buy cheap stuff but are more interested in chasing high flys. 🤓😷

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This divergence between techs and financials is unusual. It's going to reverse at some point. Money will rotate out of the high-flying technology stocks that are trading at historically rich valuations and flow into "value" stocks that have not participated much in the market's rally.

I thought we might have reached that point last month when the Technology/Financial ratio chart hit its highest level since the dot-com bubble burst back in 2000. But, as I mentioned above, extreme conditions have gotten even more extreme.

Take a look…

This is a ratio chart that shows the share price of the Technology Sector ETF (XLK) divided by the Financial Sector ETF (XLF). When the chart moves higher, tech stocks are outperforming financials. And, when the chart moves lower, XLF is doing better than XLK.

So far this year, XLK is far outperforming XLF – to a degree we haven't seen since 2000. It's not sustainable. It's going to reverse. And, when that reversal happens, the move lower on this chart is likely to be as swift as the move higher has been.

In other words, you're not going to want to own tech stocks. You'll want to be in the unloved financial sector.

Despite my concerns over the health of the broad stock market, I've been slowly, and steadily putting money into the financial sector over the past several weeks. It's arguably one of the cheapest sectors in the market.

Most financial stocks are trading at historically low valuations. And, the technical patterns appear to be turning bullish.

If we do hit a rough patch in the stock market over the next several weeks, money is likely to come out of the tech sector and flow into financial stocks. That could spark a pretty hard decline in many of this year's best-performing stocks. And, it could spark one heck of a rally in the banks.