What metrics distinguish between volatility, rotation, profit taking algos?

[Steven]

Cam:
Given the tech sell off, what metrics do you use to distinguish between volatility, rotation, and profit-taking algos?
(I need to determine whether to buy the 6/9 dip in Tech or take profits and reinvest in industrials, which appear to be rotating up.)

[Cam Hui]

Too early to tell after one day. Need for signs of some follow-through before making a call.

[D.V.]

Take a look at the technicals.
100 DMA for Nasdaq, is at 6017. Nasdaq closed on friday at 6153.08. Let us round off the 100 DMA to 6000. Last time, Naz bounced off 6000 was on 5-17-17. We are 5% below the all time peak (6321). In this recent correction, Naz bounced off the 6000 level several times.
The next support below 6000, on the Naz, kicks in at (5800) to 5900.
The 150 DMA average kicks in at 5850 (I am rounding off these numbers for sake of convenience). Note that for the past one year, Naz has bounced off the 100 DMA. If one is underinvested in the Naz, one could add to positions, or build a position by dollar cost averaging around the supports noted.
One of course needs to see how the bounce of the Naz develops in the near term. So far, Naz has been a laggard, although, it is early days, as Cam indicated. The sector is expensive, and has experienced steep rise in the last 12 months. That said, that is also where the growth is.
Let us also look at the implied volatility of out of the money call options, of QQQ. The implied volatility for October, December 2017 and January 2018 contracts is 15-20%, give or take. So, the downside volatility of QQQ is 7.5-10% (half of the range). In conclusion, if one could stomach a 7.5% downside risk (400 points give or take), one could consider investing in the Naz, with careful stops and judicious $ cost averaging.
Look at the RSI also (relative strength index) for Naz, which is also at the low end of the range. That said, as Cam has pointed out, all of this depends on one’s time horizon and portfolio goals/time horizon.
Whether one should add industrials over tech, well, again, depends on portfolio mix, goals, and time horizon etc. Unfortunately, industrials are at the high end of the range here, everything is at a peak.
Still learning to fish.

[D.V.]

See the graph on this link:
https://finance.yahoo.com/chart/%5EIXIC#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%3D

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