Rotation cuts both ways.
Rotation is when money moves from one corner of the market to another.
It’s a healthy process. That’s why traders refer to it as the “lifeblood of a bull market.”
But rotation doesn’t feel so good when you’re caught on the wrong side of it.
Consider what’s happened to a few leading stocks…
Netflix (NFLX) has fallen 11% over the past month, despite the major indices hitting new all-time highs. And it’s not alone.
Spotify (SPOT) and Axon Enterprise (AXON) have dropped 14% and 13%, respectively, over the same period.
All three stocks are now trading below their 50-day moving averages.
These names led the market off the April lows. Now, they’re breaking down.
So, is this a red flag? To answer this question, we need to look at what else is happening.
Yesterday, the Invesco S&P 500 Equal Weight ETF (RSP) registered its highest daily close since December. So did the Invesco Russell 1000 Equal Weight ETF (EQAL).
This tells us breadth is improving across the board. That’s promising.
We’re also seeing strong performances from key “risk on” groups.
The SPDR S&P Homebuilder ETF (XHB) has climbed 8% higher over the past month, while the Invesco Solar ETF (TAN) has jumped 19%.
In other words, money isn’t flowing from leaders to defensive stocks. It’s heading further out the risk curve. That’s typical of bull markets.
So, I’m not too concerned about the recent pullbacks in names like NFLX and SPOT. Instead, I’m getting even more bullish.
Now, that doesn’t mean stocks will go straight up from here. We could have pullbacks, especially if a major group like technology loses steam.
In a true bull market, rotation isn’t a reason to panic—it’s a reason to pay attention. When former leaders stumble, it often paves the way for new ones to emerge. The key is to stay nimble and aligned with where the money is going, not where it’s been.
We followed this rule in my Express Trader advisory this week, selling a leading eVTOL company for a 94% gain.
We could have continued to hold… but the prudent thing to do was take our profits and use them to invest in the next emerging market leader, like my latest solar pick.
If you’d like to join us at Express Trader and get my three strongest stock recommendations each week, go here.
Justin Spittler
Chief Trader, RiskHedge
