With the confluence of bearish factors showing up in headlines the past few weeks, enthusiasm for stocks looks to have waned.
Valuations for many sectors were stretched coming into the first quarter, even after the steep selloff in January, but little justification has emerged for stocks attaining new highs.
For one, revenue and earnings' reports have been weak, regardless of how low expectations are. With corporations struggling to find avenues of growth across the world, fundamental reasons are lacking for wanting to own equities.
Additionally, broader economic factors are slowing as well. From the housing sector to inflation, U.S. monetary policy has failed to spur meaningful improvements. Central bankers across the globe are running out of options to aid growth, which is denting investor sentiment.
One of the primary indicators that investor sentiment is turning bearish can be seen in the technology sector. Technology company earnings, such as Apple (AAPL - Get Report) and Alphabet (GOOGL - Get Report) , have failed to impress, leading the market to re-price the entire sector.
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Below is a chart of Technology Select Sector SPDR (XLK - Get Report) over Guggenheim S&P 500 Equal Weight (RSP - Get Report) , representing the relative strength of technology stocks relative to the entire market. Over the last two weeks, the indicator has turned overwhelmingly bearish, signaling a potential downtrend emerging in the technology sector.
Considering the technology sector led markets to new highs over the last few years, it is difficult to see which new sector can carry the burden of keeping markets afloat.
As the technology sector begins to underperform the broader market, First Trust NASDAQ-100 Equal Weight Index (QQEW - Get Report) looks to be forming a large topping pattern. Considering the NASDAQ 100 is traditionally market cap weighted, the equal-weight index gives a more accurate reflection of how investors are viewing the entire sector.
The equal-weight index is down close to 10% from its 2015 peaks, but has largely consolidated in a bearish topping pattern over the last two years. With valuations for most companies in the NASDAQ near record levels still, the lack of future catalysts could push the index down further.
In response to the recent shift towards bearish sentiment, investors have piled into precious metals, such as iShares Silver Trust (SLV - Get Report) . The silver index is up over 30% in 2016 alone, and looks to have formed a reversal pattern higher.
The flow of funds from high-growth technology companies towards more defensive precious metals, is a testament to the thesis that investors are turning bearish. Cashing in shares of Apple or Netflix, and using such proceeds to build a position in silver or other precious metal producers could yield the best results in the current trading environment.