Sector Shock and Reversal

Jan 22, 2008: 6:51 PM CST

Today’s action was incredibly bullish from the perspective of short-term sector rotation. How so?

Typically, defensive sectors rise when larger traders expect falling market prices as a whole. Such examples would be the Consumer Staples, Health Care, and Utilities sectors.

When larger traders show confidence in the market, they will aggressive purchase shares of companies in more expansionary sectors, such as Financials, Consumer Discretionary, and Technology.

Although one day is generally not sufficient to make any sort of long-term projections using the Sector Rotation Model, we do see bullish implications from today’s sector action.

Let’s look:

Today’s leaders arose from the Consumer Discretionary (up almost 2%) and the Financial (up over 2%) sectors, which show large returns in the early recovery (or late bear market) phases.

The traditionally ‘defensive’ sectors such as Health Care (down almost 3.5%) and Utilities (down almost 3.5%) were the day’s complete losers.

In terms of industries, the Retail industry increased over 5% today! So many pundits have predicted the death of the US Consumer – today’s action temporarily refutes those prognostications.

Are larger investors and traders rotating money away from defensive sectors and into more aggressive sectors as a sign they see better days ahead?

It’s too early to say right now, but I do see bullish implications in today’s shocking price reversal.

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