Technology and Discretionary Outflows Suggest Near-term Pop

Discretionary and Technology Stocks See Large Selling

Below, lists the daily counts of buys and sells in discretionary stocks. This proprietary index seeks out unusual trading activity, indicative of institutional footprints.

On Tuesday, 19 discrete names triggered outflows. I’ve mapped this data against the Consumer Discretionary Select Sector SPDR Fund (XLY). This is notable as these outflows are the most seen in a month:

Selling may sound negative for a group but in an uptrend it isn’t. Earnings season is a “liquidity event” that portfolio managers use to trim and add positions.

Similar style action hit tech stocks, primarily semiconductors. On Tuesday alone, 46 companies saw unusual outflows. That’s 21% of our institutional universe. See below how this activity tends to offer great entry points.

I’ve mapped the Technology Select Sector SPDR Fund (XLK) against these daily counts. Keep in mind most of the selling was in semiconductors. A good proxy for the group is the VanEck Semiconductor ETF (SMH).
Tuesday logged the most selling all year:

Many investors are scratching their head trying to make sense of the strong rally this year. Consider the following chart.

Earnings Are Still Working and 2024 Looks Even Better

A couple of weeks ago, our chief macro analyst pointed out how the feared earnings apocalypse is a no show. As long as earnings are holding up, there’s a strong narrative for higher equity prices.

Smart investors are “looking through” the expected earnings weakness in 2023. Markets are forward thinking and they are positioning for what appears to be an acceleration in 2024.

Below shows EPS expectations for the S&P 500 (SPX) for 2023 and 2024:

This flies in the face of the negative media narrative. It’s one reason why focusing on institutional positioning is an edge.

The Bottom Line

Large outflows spotted in discretionary and technology stocks offer near-term upside based on history. Tuesday’s flows saw some of the largest outflows all year.

Couple this with expected earnings growth in 2024, and you have a recipe for a continued bounce.

These insights are a truncated view of MAPsignals research which you can learn more here.

Disclosure: As of the time of this writing, the author holds no positions in the ETFs mentioned: XLK, SMH, XLY at the time of this writing.