Reading the Rotations

Don Kaufman here.

Let’s skip the fluff and dive into something that every trader needs to understand: rotations and counter-rotations in the market.

If you’ve been watching the markets lately, you’ve seen it—big tech rallying like it’s prom night, while financials and energy stocks are stuck holding their punch cups in the corner. 

But here’s the thing: this isn’t random. It’s a game of musical chairs, and if you’re paying attention, you can figure out who’s about to grab the next seat.

What Are Rotations, and Why Should You Care?

Think of rotations like a seesaw—the money leaving one sector is often piling into another. When financials rally, tech might take a breather. When energy stocks start moving higher, it’s often at the expense of another sector.

This is where most traders miss the boat. They see a rally in financials and think, “Oh, that’s nice,” but they fail to ask the key question: What’s getting sold off to fund that rally? Understanding these relationships is like finding the cheat code to the market.

Yesterday's Market Moves: A Case Study

Let’s break it down. Yesterday, tech was the star of the show—Apple, Microsoft, Amazon—it was all tech, all the time. But here’s the kicker: financials and energy were getting crushed.

Now, fast forward to today. If you see financials starting to rally, what’s your first thought? It should be this: If financials are up, where’s the money coming from? Answer: likely tech. It’s all part of the rotation game.

This isn’t just guesswork, folks. Over the last few sessions, we’ve seen a clear pattern—when financials and energy sell off, big tech takes the lead. But as soon as financials start climbing, tech often pulls back. It’s a counter-rotation, and it’s happening right in front of you.

Spotting Rotations in Real-Time

Here’s how you can stay ahead of the game:

1. Start Your Day with a Sector Check-Up
   When the bell rings, don’t just stare at the S&P 500 like it’s going to tell you the secrets of the universe. Instead, look at sector performance. Are financials up? Is energy catching a bid? If so, watch for possible sell-side pressure in tech.
   

2. Track the Big Money Movers
   Watch the big names in each sector—Apple, Microsoft, Nvidia for tech; JP Morgan, Bank of America for financials; Exxon and Chevron for energy. These are your market thermometers.
   

3. Follow the Volume
   A rally without volume is like a party without music—it’s not going to last. If financials are moving higher but there’s no meaningful volume, it’s probably a head fake. Same goes for tech.
   

4. Watch the Options Market
   Keep an eye on unusual options activity. If you see big money loading up on puts in one sector while calls spike in another, it’s a dead giveaway that rotations are in play.
   

Why Rotations Matter to You

Here’s the bottom line: if you’re not paying attention to rotations, you’re trading blind. Rotations are how the big players move money around without drawing too much attention. 

They don’t just wake up and decide to sell tech and buy financials on a whim. 

There's a strategy behind it, and if you can spot the patterns, you can ride the waves with them.

Yesterday's light volume in the S&Ps—just 137,000 contracts—meant the big moves we saw weren’t coming from conviction. 

They were rotation-driven. That’s why you saw tech dominating while financials and energy lagged.

The Takeaway

Let me leave you with this: the market is always moving, but it’s not always moving in the same direction. Rotations and counter-rotations are the heartbeat of the market. 

If you can spot them, you’ll know which sectors are about to pop—and which ones are about to drop.

Don’t let another day go by wondering why your favorite stock suddenly tanked while another sector soared. 

Learn to read the rotations, and you’ll stop chasing trades and start anticipating them.

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