Sector Performance from August Low to Present February

Feb 7, 2011: 2:36 PM CST

It’s been a while since I updated you on Sector ETF performance according to the Sector Rotation Model, so let’s take a quick look at past and present money flow returns from the Offensive and Defensive Sectors starting with the August 2010 low at 1,040 and moving to the present February breakthrough beyond 1,300.

Here’s the chart:

You can also call this the QE2 Returns/performance, as initial rumors of the Federal Reserve’s aggressive, market-lifting stimulative QE2 program began about this time.

This is exactly the picture the Sector Rotation Model argues for Sector Strength and bull market continuation parameters – though the fact that Oil/Energy is by far the largest performer sends caution signals to the market.

High Oil/Energy Prices are common-place and expected in a rising/recovering economy/bull market, but if they rise too high too quickly, it can serve as a broad-based tax that reduces income across the board for companies and individuals alike.

That being said as a word of caution, everything else is a ‘go’ according to the model, in that the Five Offensive Sector ETFs (Financials, Consumer Discretionary, Technology, Industrials, and Materials) are all the strongest sectors and all – save Financials – have outperformed the S&P500’s 25% gain in the last five or so months.

The weakest performers – as expected and as should be the case – are the Three Defensive Sectors:  Consumer Staples, Health Care, and Utilities.

It helps immensely to divide the broad market down into two categories of Offensive and Defensive Sectors, and then sub-divide those groups into the Five Bullish/Offensive Sectors and Three Bearish/Defensive Sectors.

Oil/Energy is up 46%, followed closely by the Industrials, Materials, Technology, and Consumer Discretionary Sectors – all up around 30%.

Financials are lagging the broader market and that may be a bit surprising, but keep in mind that – over the course of a bull market/economic recovery – money flow tends to move from left to right in terms of how the sectors appear on the chart.

Anyway – while we’re above 1,300 on the S&P 500, this market remains in bull territory and is supported by the above chart of recent sector performance… though do keep a close watch on the Energy Sector to make sure its quick rise does not translate into fewer dollars available to the economy after consumers/businesses must pay up for higher energy/oil prices.

Corey Rosenbloom, CMT
Afraid to Trade.com

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