Sector Clues for the Year to Date

Mar 4, 2008: 10:18 AM CST

Let’s look at some insights from the Sector Rotation Model and also Sector Returns to date:

Since the start of 2008, all nine Sector SPDRs were negative, with Materials performing the ‘best’ by only losing 0.36%.

Technology has fared the poorest, losing a massive 17% (thanks to Google and Apple and many others under intense pressure).

If we compare these returns and make them relative to the S&P Index, we see clues from the Sector Rotation Theory:

The model is providing relatively unclear results, as these sectors are aligned from left to right in terms of how money flows from sector to sector as the funds ‘rotate’ positions among the major sectors.

Again, materials have outperformed (relative to the S&P), and we see a negative money flow pattern (purple arrow) on the right side of the chart.

The ‘ghost in the machine’ is the Technology sector, which has grossly underperformed all other sectors.

It is interesting to note that, although all sectors are underwater for the year, all sectors except Utilities, Financials, and Technology have outperformed the S&P index.

With the trend still down, it’s best not to buy sectors except as a hedge. From the above pattern, it’s difficult to predict where the money will be flowing next.

Why is it confusing? From a sector rotation standpoint, the current chart (relative strength) is showing a late bull market, rather than early bear which was showing up.

Keep in mind this is only two months worth of data (40 trading days).

3 Comments

3 Responses to “Sector Clues for the Year to Date”

  1. The Word Says:

    When you have the time, could you please explain what you mean by:

    “these sectors are aligned from left to right in terms of how money flows from sector to sector as the funds ‘rotate’ positions among the major sectors.”

    Did you post something in the past about that?

    Regards,

  2. Sector Clues for the Year to Date | Great Trade Says:

    […] the rest of this great post here Author: Time: Tuesday, March 4th, 2008 at 10:18 am Category: Trade Comments: You can […]

  3. Corey Rosenbloom Says:

    Sure, no problem.

    It’s actually based in the textual description of the cycle of how money flows in a typical economic and stock market cycle from sector to sector as the economy expands and then contracts.

    I’ve mentioned it sparsely, but in the following posts:

    http://blog.afraidtotrade.com/bearish-indications-from-sector-rotation/

    http://blog.afraidtotrade.com/sector-rotation-shows-defensiveness/

    The small chart indicates what to expect at different times in the cycle. John Murphy and Sam Stovall (authors) have more insights on the theory, as well as Dr. Peter Navarro.