Market 2017-12-04 (Market Rotation, and more)

Market Sector Rotation is massive today as reaction to Tax Reform.

Consumer Goods, Telecommunications and Industrial Sectors are outperforming. Tech, Healthcare and Utilities are lagging.

During the weekend, I have written an article about my thoughts on tax reform impacts. I have pointed out that Restaurants and Retailers will benefit a lot, which is exactly what happens today. On the other hand, cash is flowing out from red-hot tech names.

Why does the Big Rally Fade Today?

The Tax Reform was already expected to pass --- "Buy the rumor, sell the news" also works. The Tech Sector correction is real as profit taking is under way.

Political chaos continues while Trump is attacking everybody like a desperate mad dog.

Possible government shutdown (by 12/8)? Not likely though.

The big question is --- has the Tax Reform fully priced-in?

No, I don't think so. If a company is paying 35% tax right now, for every $100M profit, investors get $65M. Once the tax rate decreases to 20%, investors get $80M, which is 23% more instead of 15%. If you company use the extra $15M to buyback (reduce share counts) or pay down debt (reduce interest cost), EPS growth will be even more than 23%. Also, a good CFO will invest before tax drop and realize more profit afterwards to maximize tax benefits. I expect those companies will run higher after analysts reset their models.

Winners 

Retailers (I only list a few): M +6.7%, KSS +4.4%, JWN +3.6%, TGT +5.1%, GPS +6.6%, FL +5.7%, 
LB +2.2%, UAA +1.5% DG +3.2%, DLTR +3.3%, HD 2.4%...

Automakers: GM +0.6%, F +0.4%. Also auto-retailers I have mentioned in my weekend article: AN +2.2%, KMX +3.4%

Restaurants: for instance, CMG +2.6%, DENN +1.6%, CAKE +3.2%...

Banks: for instance, JPM +2.1%.

URI (+1.8%), which is my favorite in Industrial, flies higher. GWW +4.1%.

Home-Builders: TOL +2%, LEN +0.7%.  KBH -1.1%, could be buying opportunity.

MOMO (+9.9%) starts to bounce back after options expire.

DIS (+4.7%) breaks out $105 resistance. It finishes @ $110.22. I have called to buy DIS not long ago when it was $98.

Losers

CVS (-4.8%) is buying AET (-1.4%) for $69B. It could be a revolutionary deal. However, both drop today. I would like to initiate position in CVS in the next few days.

GILD (-3%), I may add more position (sold 30% @ $75.4 last Friday).

Big Tech Names: NVDA -5.6%, MU -4.8%, AMAT -4.1%, LRCX -3.8%, MSFT -3.8%, FB -2.1%, AAPL -0.7%, AMZN -2.4%, NFLX -1.4%, GOOG -1.3%, SQ -3.5%, WDC -2.8%, BABA -2.9%.

QD -9.3%, XRF -13.9%, YRD -9.5%.


My Trades Today

Double-down on FB, average $173.

Add more QD @ $12.6

 Some Friends have asked me that why I don't have much tech in my portfolio. The current selloff is exact my reason. I have converted most of my tech positions to retailers throughout the year, although the timing was not really perfect. I plan to add more positions if the selloff continues.

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