3 industries that ran up this week

Hey friends, While doing my weekly scan I noticed that 3 of the top 5 sectors this week are ones that we have been warning about.

As traders, you know better than me to see if there's any continuation of this market on Monday but, it looks like they are at levels now to consider layering in short positions, if that suits your risk profile.

These are:

We had a number of key data points come out in the last two weeks around the housing industry. Most of it is just reiterating what Mayhem has already discussed in his article on October 18. Here's a link.

We reiterate the message - with mortgage rates soaring, cost of capital increasing and demand falling - homebuilders are unlikely to take any major projects and we're seeing this in the data.

The top 10 holdings in ITB are:

I've been warning about discretionary retail for a while now. We discussed in our monthly call in September, I spoke about Nike on Fox business and, Mayhem and I wrote and article covering the Retail Conference on September 17. Here's a link.

The thesis is simple - we have the Fed raising rates to destroy demand and we have an issue with inflation crowding out discretionary spending. We saw Nike discuss inventory build up and the latest warning came from Amazon. Many of the companies had over-ordered due to the supply chain crisis and is now sitting on massive levels of inventory where they need to take mark downs.

Apparel has an even bigger problem - 1) the price of cotton and energy rising means it's challenge for the developing countries (where most apparel is made) to keep up with orders and 2) much of the apparel in store will go out of season and will have to be marked down.

The top 10 holdings in XRT are:

Finally, we have biotech. Again we wrote about this some time back. Here's a link to the full article. The biotech bull thesis is based on M&A in the sector and a pipeline of new patents. And while the cash the companies raised during the bull market in 2020 and 2021 can give them a boost, it's clear that the companies have too long of a pathway to profitability and are getting sold off in this high rate environment.

The top 10 holdings in IBB are:

Finally, I'd like to leave you with this chart. While many out there say that the price action on these names have been positive during rallies, the YTD performance has been abysmal. These names are just not suited for the macro environment we are in. None of these are bad companies or bad ETFs. In fact, I like a great many of them from a fundamental perspective. This is just not the right time. Good luck and be safe out there.