Market tech concentration may persist for years: Market trends

Market concentration continues to narrow in on Big Tech. With no large catalysts, the market can maintain this pattern for some time, data suggests. Still, there are other stocks and sectors to watch, as Yahoo Finance reporter Jared Blikre joins Asking For A Trend to explain. The Communication Services Select Sector (XLC), for example, boasts both offensive and defensive names.

For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend.

This post was written by Nicholas Jacobino

Video transcript

Us stocks close, little change as investors assess fresh economic data while also looking ahead to the latest reading on the fed's preferred inflation gauge.

Yahoo Finance's Jared Blick joins us now for more on the trading day takeaways, Jared.

Thank you, Josh.

Uh A lot of ink has been spilled about some of the moves that have been made in the market, especially the A I trade.

But what do you do if you've missed the boat until now?

Well, we got a lot of stocks and sectors to watch here.

So let me just go through a couple of the recent things that are on my radar here and I'm going to start with the NASDAQ 100 this is where we see the action.

By the way, all these returns are year to date.

So Josh, I'm looking at Amazon here.

The stock has really picked up over the last two days.

But what I'm interested in is this pattern that has formed over the last few years.

This is a five year chart and what we've just traced out is this giant consolidation, nice cup there, tiny little handle and we have broken into the upside as we can see there.

Now, I'm also taking a look at Tesla.

Interestingly, both of these stocks are the two biggest components of consumer discretionary.

What you notice with Tesla is, uh, there's a lot of consolidation in here and I'm interested in a pattern that's happening in this year.

So I'm gonna, I'm gonna go down to a one year chart and specifically with candlesticks, you can kind of see what's happening here.

This is an inverse head and shoulders that's tracing out here with the potential neck line at about $200.

We show we shoot above $200.

I would expect some continuation and this is a stock, you know, a lot of people pay attention to it.

So is it the next NVIDIA?

You know, the next A I, I don't know, but I like it above 200.

All right.

So big Amazon Tesla, big well known names.

How about a little bit more under the hood, Jared?

What are you seeing?

Well, I've also been tracking biotech and this is something IBB is a ticker I'm using.

You can also take a look at XB.

I let's see if I can find IBB on here and, and uh, well, we'll see if we can, uh, see if we can chart this, not seeing IBB.

Um, unfortunately, however, I can, I can assure you that it is there.

Anyway, I'm looking at bio.

Thank you.

I'm looking at biotech.

I'll show you one more thing.

Here's XL C I do.

This is the number one sector uh of the year.

So it is outperforming tech.

Let me show you another five year chart.

I'll put some lines on and you can see here's another giant cup.

I've heard some folks say about this sector, by the way, a little bit like health care.

They kind of see it as a way.

They, they see the kind of offensive and defensive names in there.

You know XL C is such a catch all you got alphabet, you got uh you got meta in there, you got Verizon AT&T Netflix.

What do all those have in common?

Well, not a whole lot.

But anyway, that's the sector.

It's kind of a catch all.

So I like XL C. Uh but I'm really watching Amazon and Tesla now take away number two, take away number two.

I'm on pins and needles here myself.

We got market concentration.

Yes, I was writing about this in the uh brief overnight, published this morning and I was looking at this chart from Bank of America.

This goes all the way back to 1990.

What we are looking at here is three months, correlation of all the stocks within the S and P 500.

So these spikes here, I'm gonna show you this happened during the pandemic.

Sell off when correlations rise steeply like that because everything is going down.

So you don't want to see that if you're a Stock bowl, when you get down here, what you're thinking is, well, maybe you were gonna go back up here, but the Point Bank of America is making, we've been down here several times and guess what?

Look at the early nineties to mid nineties.

You had years and years just staying at that level.

So the concentration that we're, and this is what we're measuring market concentration.

Uh This can last for a long time.

In other words, the rally is narrow, but a rally can stay narrow for a while.

If there's no big catalyst, if everything doesn't fall off together, you can just kind of persist this way for years, take it easy, relax.

Enjoy it.

Number three.

All right, vic seasonality.

Thank you.

We've been talking about stock seasonality.

Now we're gonna do vic seasonality.

So, you know, when the vic spikes, that's the fear gauge.

And let me show you, this is uh this purple line is the average of the vics uh throughout the year, going back all the way to 1990.

That's when calculations began.

And the Cyan line here is what has happened so far this year.

And so you can see it's not a perfect correlation here, but it kind of, it kind of fits rather well.

And if you're taking a look at the next potential spike, that's when we would expect the next downturn that would come at the end of July.

So you know, maybe something to keep and, but you'll notice until then pretty low.

So maybe we get a rally.

How does this, how does this seasonality kind of ma map with the other seasonality trends?

You've been bringing us Jared, I showed this chart, uh, last week and this is the 1st 10 in the last 10 days of every month.

And what we're seeing here is the 1st 10 days of July by far, the best performance of the year.

This is just on average.

So it doesn't have to happen this way.

But if you're putting this all together, the vic seasonality, plus this probably got some tail winds until at least the end of July.

And if you're really paying attention here, the big spike up in the Vicks that tends to happen in September, October.

That is prime time, crash season.

All right, Jared B great takeaway.

Thank you.

Thank you.