Brief Sector Rotation Insights

Dec 10, 2007: 9:31 AM CST

Looking at the Sector Rotation model over the past 10 and 30 days, we see bearish longer term and mild-to bullish short-term sentiment as a ‘money flow’ indicator.

Let’s first look at the 30 day segment of sector performance:

We see fund flows into relatively defensive or bearish sectors during the period from late October to present.

Consumer Staples, Health Care, and Utilities have far outpaced the other sectors, especially the bullish ones such as Technology and Consumer Discretionary Spending.

Financials, which has at times led the market, was the worst performing sector.

This picture is in line with the 60 day period as well, signifying defensiveness and ‘uncertain times ahead’ according to the model.

However, the shorter term picture is a bit more bullish. While we don’t see the opposite picture, we do see signs of hope:

In this period from late November to present, we do see the financials outperforming every other sector with the exception of Basic Materials.

If Financial stocks do lead the market, then we should be seeing higher market prices in the short term.

Indeed, we are seeing “money flows” out of the defensive sectors and into more expansionary or ‘bullish’ sectors according to the model.

Short term movement precedes long term movement, and if the current trend continues, we could see higher prices for the broader indexes according to the simple interpretation of this model.

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