In this video, Dave breaks down bearish macro signals and risk management using the “line in the sand” technique! Learn how to spot key support levels, set alerts on StockCharts, and protect your portfolio!
This video originally premiered on February 26, 2025. Watch on StockCharts’ dedicated David Keller page!
Previously recorded videos from Dave are available at this link.
Sector rotation is difficult to spot in real time because it unfolds over weeks or months and isn’t always obvious until after the fact. Since there’s no single or definitive way to monitor a rotation, you’d have to observe it from different angles. In this article, we’ll examine one combined approach you can use.
Tuesday’s Consumer Confidence report saw its worst decline in four years. This followed last week’s Consumer Sentiment report, which also caused a huge upset. If anything, these confidence reports indicate that investors are forecasting the likelihood of a recession.
Might these expectations also be evident in the way investors are allocating their capital? In other words, are we seeing an early sector rotation from cyclical to defensive stocks?
Julius de Kempenaer’s article on the top five leading sectors touches on this. If you’re not familiar with his articles, sector rotation is sort of his thing, so I recommend you follow his posts if this interests you.
FIGURE 1. RRG SECTOR CHART. Is a rotation underway?Chart source: “The Best Five Sectors #8.”Consumer Discretionary (XLY) and Financials (XLF)—both cyclical components—have begun to retreat from their leadership positions. Meanwhile, Utilities (XLU), a purely defensive sector, started showing signs of strength despite lagging behind its cyclical peers.
To get another bird’s eye view of sector activity, pull up a sector chart on MarketCarpets. Here’s a screenshot of a five-day view taken on Tuesday. It doesn’t show the type of movement the RRG chart shows, but you can view the strength of performance (and other available metrics) in percentage terms.
FIGURE 2. MARKETCARPETS SECTORS CHART. Among the cyclical stocks only, Consumer Discretionary is the weakest performer, while Consumer Staples leads the pack.Image source: StockCharts.com. For educational purposes.
Granted, five days of performance doesn’t define a trend, but this chart suggests an interesting pattern: Consumer Staples, Health Care, and Real Estate are outperforming their sector peers. Although Real Estate is generally cyclical, REITs, known for their steady income, often exhibit defensive characteristics.
What do these movements look like in terms of market breadth? The Bullish Percent Index (BPI) is a powerful tool for assessing the internal strength of an index or sector. So let’s examine the top three cyclical and defensive sectors to see what the BPI reveals.
FIGURE 3. THE TOP THREE CYCLICAL AND DEFENSIVE SECTORS BASED ON BPI.Chart source: StockChartsACP. For educational purposes.
While the BPI gives you the percentage of stocks exhibiting P&F buy signals (see the highlighted number on the vertical axis to the right), there are a lot of nuances involved in analyzing these numbers in detail. For example:
There’s more nuance to this, all of which is covered in the ChartSchool article (see link above Figure 3). That said, here are a few key points:
It would help to compare the performance of both sector groups, which is why it’s a good idea to look at ratios.
Here’s the issue: Finding a definitive index for these stocks is challenging, since sectors like Tech, Industrials, Energy, and Communications fall somewhere between cyclical and defensive. However, ETFs such as the iShares MSCI USA Momentum Factor ETF (MTUM) and the Invesco S&P 500 Low Volatility ETF (SPLV) can serve as useful proxies for cyclical and defensive stocks, respectively.
Here’s a ratio chart (SPLV:MTUM) comparing the two.
FIGURE 4. RATIO OF SPLV TO MTUM. This attempts to show the spread between defensive vs cyclical sectors.Chart source: StockCharts.com. For educational purposes.
By plotting a Zig Zag line, you can see the swing points that define the ratio’s trend. Note the following:
Keep tracking the activity of defensive and cyclical sectors using the RRG, MarketCarpets, BPIs, and ratio chart. It’s too early to tell right now whether a sustainable rotation is at play, and much of the dynamics affecting these sectors are subject to the political and geopolitical policies at play. If the likelihood of a rotation appears more evident, then drill down on sector ETFs or individual stocks within the sector.
Sector analysis is a complex topic that requires a multi-angled approach. If you’re attempting to time a rotation, you don’t want to move too early into a rotation that doesn’t pan out, but neither do you want to move too late. By using StockCharts tools like RRG charts, MarketCarpets, BPIs, and ratio analysis, you can gain clearer insights into whether investors are shifting from one sector to another. Keep a close eye on economic and policy shifts as well, as they’re likely to change the conditions of the market.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
In this exclusive StockCharts video, Joe breaks down reverse divergences (hidden divergence), key upside & downside signals, and how to use ADX and Moving Averages for better trades! Plus, he examines market trends and viewer symbol requests!
This video was originally published on February 26, 2025. Click this link to watch on Joe’s dedicated page.
Archived videos from Joe are available at this link. Send symbol requests to stocktalk@stockcharts.com; you can also submit a request in the comments section below the video on YouTube. Symbol Requests can be sent in throughout the week prior to the next show.
McDonald’s is leaning into its reputation as a breakfast value offering, vowing to reject a surcharge on meals with eggs while announcing a special one-day discount on Egg McMuffins.
The fast-food giant said in a release that to mark the 50th anniversary of its breakfast-menu cornerstone, customers on Sunday would be able to purchase an Egg McMuffin sandwich, as well as a Sausage McMuffin With Egg sandwich, through the McDonald’s app for just $1.
“At McDonald’s, breakfast isn’t just a meal; it’s a cherished tradition and cornerstone of our brand,” McDonald’s USA President Joe Erlinger said Tuesday. “Every morning when we open our doors, we are a breakfast restaurant.”
Coinciding with the release, a McDonald’s executive emphasized in a LinkedIn post that the chain had no intention to charge customers extra for meals featuring eggs amid a nationwide shortage that has sent prices soaring and prompted at least two other national chains to do so.
‘Unlike others making news recently, you definitely WON’T see McDonald’s USA issuing surcharges on eggs, which are 100% cage-free and sourced in the U.S.,’ wrote Michael Gonda, McDonald’s chief impact officer for North America.
The announcements come as McDonald’s tries to leave a recent slump behind: Earlier this month, it reported its worst quarterly sales drop since the pandemic — but forecast improving results for 2025.
Year to date, its shares are up some 6%, outperforming broader market indexes.
Nvidia is scheduled to report fourth-quarter financial results on Wednesday after the bell.
It’s expected to put the finishing touches on one of the most remarkable years from a large company ever. Analysts polled by FactSet expect $38 billion in sales for the quarter ended in January, which would be a 72% increase on an annual basis.
The January quarter will cap off the second fiscal year where Nvidia’s sales more than doubled. It’s a breathtaking streak driven by the fact that Nvidia’s data center graphics processing units, or GPUs, are essential hardware for building and deploying artificial intelligence services like OpenAI’s ChatGPT. In the past two years, Nvidia stock has risen 478%, making it the most valuable U.S. company at times with a market cap over $3 trillion.
But Nvidia’s stock has slowed in recent months as investors question where the chip company can go from here.
It’s trading at the same price as it did last October, and investors are wary of any signs that Nvidia’s most important customers might be tightening their belts after years of big capital expenditures. This is particularly concerning in the wake of recent breakthroughs in AI out of China.
Much of Nvidia’s sales go to a handful of companies building massive server farms, usually to rent out to other companies. These cloud companies are typically called “hyperscalers.” Last February, Nvidia said a single customer accounted for 19% of its total revenue in fiscal 2024.
Morgan Stanley analysts estimated this month that Microsoft will account for nearly 35% of spending in 2025 on Blackwell, Nvidia’s latest AI chip. Google is at 32.2%, Oracle at 7.4% and Amazon at 6.2%.
This is why any sign that Microsoft or its rivals might pull back spending plans can shake Nvidia stock.
Last week, TD Cowen analysts said that they’d learned that Microsoft had canceled leases with private data center operators, slowed its process of negotiating to enter into new leases and adjusted plans to spend on international data centers in favor of U.S. facilities.
The report raised fears about the sustainability of AI infrastructure growth. That could mean less demand for Nvidia’s chips. TD Cowen’s Michael Elias said his team’s finding points to “a potential oversupply position” for Microsoft. Shares of Nvidia fell 4% on Friday.
Microsoft pushed back Monday, saying it still planned to spend $80 billion on infrastructure in 2025.
“While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions. This allows us to invest and allocate resources to growth areas for our future,” a spokesperson told CNBC.
Over the last month, most of Nvidia’s key customers touted large investments. Alphabet is targeting $75 billion in capital expenditures this year, Meta will spend as much as $65 billion and Amazon is aiming to spend $100 billion.
Analysts say about half of AI infrastructure capital expenditures ends up with Nvidia. Many hyperscalers dabble in AMD’s GPUs and are developing their own AI chips to lessen their dependence on Nvidia, but the company holds the majority of the market for cutting-edge AI chips.
So far, these chips have been used primarily to train new age AI models, a process that can cost hundreds of millions dollars. After the AI is developed by companies like OpenAI, Google and Anthropic, warehouses full of Nvidia GPUs are required to serve those models to customers. That’s why Nvidia projects its revenue to continue growing.
Another challenge for Nvidia is last month’s emergence of Chinese startup DeepSeek, which released an efficient and “distilled” AI model. It had high enough performance that suggested billions of dollars of Nvidia GPUs aren’t needed to train and use cutting-edge AI. That temporarily sunk Nvidia’s stock, causing the company to lose almost $600 billion in market cap.
Nvidia CEO Jensen Huang will have an opportunity on Wednesday to explain why AI will continue to need even more GPU capacity even after last year’s massive build-out.
Recently, Huang has spoken about the “scaling law,” an observation from OpenAI in 2020 that AI models get better the more data and compute are used when creating them.
Huang said that DeepSeek’s R1 model points to a new wrinkle in the scaling law that Nvidia calls “Test Time Scaling.” Huang has contended that the next major path to AI improvement is by applying more GPUs to the process of deploying AI, or inference. That allows chatbots to “reason,” or generate a lot of data in the process of thinking through a problem.
AI models are trained only a few times to create and fine-tune them. But AI models can be called millions of times per month, so using more compute at inference will require more Nvidia chips deployed to customers.
“The market responded to R1 as in, ‘oh my gosh, AI is finished,’ that AI doesn’t need to do any more computing anymore,” Huang said in a pretaped interview last week. “It’s exactly the opposite.”
Elon Musk’s status as the world’s wealthiest person is in no danger of changing.
But since mid-December, the tech titan’s net worth has declined by more than $100 billion, or approximately 25%, as a sell-off in shares of Tesla, his electric car maker, has accelerated in recent weeks.
On Tuesday, the stock closed down another 8% to $302.80 and is off 25% year to date. The latest drawdown comes as new data showed new Tesla vehicle registrations plummeting in Europe, down 45% year-on-year for January, even as overall sales growth of electric-battery vehicles on the continent climbed. Sales in China also recently came in trending down.
Some reports have suggested European buyers are revolting against Musk’s active role in the Trump administration, which is effectively resetting longstanding European relations.
Investors may also simply be locking in the extraordinary gains of the past year or so: Even with the recent drop-off, the stock is still up 52% over the past 12 months.
On Tuesday, Gary Black, managing partner at The Future Fund investment group, said Tesla shares could fall even further this year given an apparent revision in recent Tesla corporate management guidance about deliveries in 2025.
Musk has assumed an unprecedented — and highly controversial — role in American society with his alliance with President Donald Trump and his ostensible leadership of the Trump administration’s Department of Government Efficiency. Musk also leads SpaceX; the social media platform X; the xAI artificial intelligence company; and Neuralink, a company that is exploring brain-chip implants.
Yet Tesla investors have grown accustomed to Musk’s multiple responsibilities — and indeed, continue to value Tesla stock highly because they see Musk as a uniquely capable figure.
To that point, some investors say Tesla’s recent stock reversal may not endure in the long term. The company is expected to deploy a robo-taxi service later this year, and continues to roll out new models to adapt to shifting driver preferences. It is also unveiling its full-self-driving technology in China.
“Tesla’s superior products, new more affordable vehicle, which I believe will be a new form factor and expand Tesla’s total addressable market, and the promise of unsupervised autonomy will sell more Teslas,” Black wrote on X over the weekend.
Electric vehicle maker Lucid Group on Tuesday said CEO Peter Rawlinson is stepping down as the company expects to more than double vehicle production this year to 20,000 units.
Lucid said Marc Winterhoff, currently the company’s chief operating officer, will step in as interim CEO. Rawlinson will serve as a “strategic technical advisor to the chairman of the board, stepping aside from his prior roles,” the company said.
“I am incredibly proud of the accomplishments the Lucid team have achieved together through my tenure of these past twelve years,” Rawlinson said in a statement.
Rawlinson’s departure is unexpected. As one of the company’s largest shareholders, Rawlinson, who also served as chief technology officer, has routinely touted his passion and stake in the automaker.
Lucid’s board has initiated a search to identify a new CEO, the company said.
The CEO change and production target were announced in conjunction with the automaker’s fourth-quarter financial results. For the period ended Dec. 31, the company reported a net loss attributable to common stockholders of $636.9 million, or a loss of 22 cents per share, on revenue of $234.5 million.
Analysts surveyed by LSEG expected a loss of 25 cents per share on revenue of $214 million.
During the same period last year, Lucid reported a net loss attributable to common stockholders of $653.8 million, or a loss of 29 cents per share, on revenue of $157.2 million.
The production target for 2025 announced Tuesday is compared with production of 9,029 vehicles and deliveries of 10,241 reported for 2024.
Shares of Lucid were about 10% higher during afterhours trading Tuesday.
As of market close, shares of the company were down about 13% this year amid slower-than-expected adoption of all-electric vehicles and uncertainty about federal support for EVs under the Trump administration. The stock declined by roughly 28% last year.
MADISON, Wis. — Early voting kicked off in this battleground state this week with computer delays and long lines.
Voters waited as long as three hours Tuesday to cast ballots in West Bend, a city of about 32,000, city clerk Jilline Dobratz said. State computer issues reared up again Wednesday, and by midafternoon, voters had to wait about 90 minutes to vote in the community 40 miles northwest of Milwaukee, she said. Residents were not used to anything like it.
A former deputy Palm Beach County sheriff who fled to Moscow and became one of the Kremlin’s most prolific propagandists is working directly with Russian military intelligence to pump out deepfakes and circulate misinformation that targets Vice President Kamala Harris’s campaign, according to Russian documents obtained by a European intelligence service and reviewed by The Washington Post.
Sister Stephanie Schmidt had a hunch about what her fellow nuns would discuss over dinner at their Erie, Pennsylvania, monastery on Wednesday night.
The day before, a Republican operative in the battleground state falsely suggested to his nearly 58,000 followers on X that no one lived at the monastery and that mail ballots cast from there would be “illegal votes.” Cliff Maloney, who hired 120 people to go door-to-door across Pennsylvania urging Republican voters to return their mail ballots, wrote on X that one of those workers had “discovered” an Erie address where 53 people were registered to vote but “NO ONE lives there.”