Best sectors to watch ahead of Biden’s inauguration

Yahoo Finance’s Alexis Christoforous and Matt Maley, managing director and equity strategist at Miller Tabak, discuss the latest market moves.

Video Transcript

ALEXIS CHRISTOFOROUS: Let's stick with the markets now and bring in Matt Maley. He is managing director and equity strategist at Miller Tabak. Hey, Matt, good to see you. So I'm curious to get your thoughts on what's getting investors down today. We have this big, ambitious stimulus plan from the Biden administration. But are investors instead focusing on the fact that it looks like taxes may go up later this year?

MATT MALEY: Yeah, I think it's-- some concerns about the tax issue, but we also understand, too, is that the markets had an unbelievable rally here, not just since the March lows, but even from, you know, right since just before the election, the very end of October.

We've had this huge rally, especially in some of these leadership groups. You know, the banks and the energy stocks haven't been leadership groups in years. And they've taken off in a big way. And same thing with some of these chip names-- the semiconductor stocks-- again, getting very, very overbought.

So again, with the long weekend coming up, I think some people taking some chips off the table in front of that long weekend. And, you know, it's certainly not a disaster that we're seeing today. It's not a major decline. So I think it's a combination of all those things.

ALEXIS CHRISTOFOROUS: I want to hone in on what you had to say about semiconductors. You say they are a little overbought right now. What do you do with chip stocks, at least in the short term?

MATT MALEY: Well, I think, yeah, they become incredibly overbought. I mean, you look at the SMH, the semiconductor ETF, I mean, it's had this huge rally. It outperformed really nicely off the lows back in March. But it was funny because one of the things that I was really pushing back in September and early October was that, you know, tech isn't dead. Don't rotate completely out of tech. You might want to go out of the FANG names and some of the mega-- mega cap tech stocks and look at others, like cloud and chips.

Well, the chips certainly have outperformed the mega cap tech names in a major way. But you look at the-- at the SMH, its weekly RSI chart is getting very overbought. Not only that, you look at the-- well, the SOX Semiconductor Index-- and I look at that sometimes because it goes back several decades, where the SMH only goes back about eight years.

But the SOX Semiconductor Index got to a 100% premium to its 200-week moving average. I mean, the only other time it's even come close to that was back at the top of the internet bubble-- of the tech bubble back in early 2000. The next closest one was a 73% premium.

And you had a stock like Taiwan Semiconductor, which its weekly RSI-- its relative strength index-- is even more overbought than it was at the top of the tech bubble. And of course, Taiwan Semiconductor has by far the biggest weighting in the SMH. So these things are just getting too stretched.

I love them long term. But I think short term traders want to take some profits here and raise some little bit of cash. And longer term investors, just hold tight. I love them long term. This is not ma-- it's not calling for a major top. But hold off buying. And I think you'll be able to buy-- add to positions at lower levels in the coming weeks.

ALEXIS CHRISTOFOROUS: All right, would love to get your thoughts on the banking sector, an area that was among the weakest last year. We just started to hear from the big banks today in terms of their bottom line. What are those reports from JPM, Citi, and Wells tell you, Matt, about the health of the economy?

MATT MALEY: Well, you know, it tells us two things-- number one, that the economy is getting better. But you know, for whatever the reason-- I mean, we talk about the vaccines haven't come out as quickly as we hoped and things like that. But either way, the lockdown may stay-- and especially with JPMorgan's comments, kind of saying, we're really not sure about going forward because people just don't know when this newest wave is really going to die out. I think a lot of people realize we shouldn't have a third wave of the coronavirus when the weather gets cold next fall. But it still could cause some problems here.

So I'm kind of looking for the same thing in the bank stocks as I am in the chip names, because I just think that they've had this great run. Again, very, very overbought. You look at the KRE, with a regional bank ETF, or the KBE, the regular bank ETF, or even the individual names, they all become very, very overbought. And also, the yield on the 10-year note have become overbought. So it's coming back a little bit.

So you have a couple of reasons here for this group to take a little bit of a breather. And I think it will last more than just today. It may last for a little bit-- awhile, while they kind of work off those overbought conditions before they can rally back. But again, more of a technical call than a fundamental.

ALEXIS CHRISTOFOROUS: All right. Let's talk about some areas that you believe are oversold right now. And you're looking outside of equities. You say the dollar is ripe for very trade-able rally and so are bonds. Tell us more about that. And how much of your portfolio is dedicated to the currency markets and the bond market right now?

MATT MALEY: Well, it's more so to the equities related to those-- those asset classes. And the thing about the dollar, you know, it is incredibly oversold. I mean, I think the long-term picture-- again, this is a situation where, you know, where there's a lot of reasons because of all of our deficit spending and all the fiscal spending we're going to be doing. The dollar should head lower over time.

But this one-- this is looking for not just a bounce over for a couple of weeks, it could be several weeks, even a couple of months. Because it has the commitment of traders' positions. The COT data shows that every-- the short positions are huge on the dollar right now. Sentiment is incredibly bearish on the dollar among futures traders, where we saw that the bullishness amongst them is in the single digits recently.

And of course, it's very, very oversold. So it's bouncing back in a way here. When you see those kind of situations where everybody's on one side of the boat, you usually get mostly weak bounces. And that's going to have a negative impact on commodities. So if the commodities-- again, it's OK. The commodities have had a great run over the last four or five months, you know, not just since the March lows, but really since the Labor Day.

So if those come in a little bit, I think it provides a great opportunity. But I think it's going to last longer than a lot of people are assuming. And so, again, this is a situation where I think people in the commodities area and, as you mentioned, in the interest rate sensitive names, you want to hold off a little bit here, raise a little cash in the names that have these great runs, and look to buy them back at a later time, later the first half of the year.

ALEXIS CHRISTOFOROUS: Hey, Matt, in the 30 seconds I have left here, you think Bitcoin, which has been on quite the roller coaster ride, you say it has more room to go higher over the long term. But you think we're in for some very big corrections along the way, right?

MATT MALEY: Yes. I just think-- I mean, it's weird how, right now, it's playing out exactly how it did at the top of 2017. And the key is the-- I'm not I'm not. I do not think the decline will be just like it did in 2018. It won't be anywhere near that bad, but we could see 30% to 40%.

And the main thing is even something that changes the world like I think Bitcoin is going to do, Amazon changed the world in a significant way over the last 25 years. But it has seen corrections of 20% to 60%. You've seen two corrections of 60%. It's seen huge, huge corrections along the way. Bitcoin will be no different. So you've got to be-- you know, hold on to your hat. There's going to be a lot of volatility.

ALEXIS CHRISTOFOROUS: We're holding on to our hat. Matt Maley of Miller Tabak, thanks so much.