With the end of July upon us Friday, I thought it’d be a good idea to look at both absolute and relative performance of key sectors to see where money flow has concentrated.  Let’s take a look:

Here we see the absolute returns of the key sector SPDRs as shown from StockCharts.com.  The S&P 500 has increased 8% with the following sectors outperforming the S&P:

Consumer Discretionary/Retail (up 16%)
Technology (up 28%)
Materials (up 24%)

This is generally a ‘bullish’ sign according to the Sector Rotation model, as it can hint that strength is increasing in the “Aggressive” or “Offensive” sectors which could indicate building strength in this rally.

I might prefer Financials to be up more than the 1.5% they are to have more confidence, though most bank stocks have rallied sharply (some of which have even doubled) off the March lows in the market.  This is not picked up as much as this comparison began with the start of the year.

Let’s now move from Absolute Performance (in percentage basis) to see a Relative Percentage Comparison to the S&P 500:

We see the same things above, only 8% has been subtracted from each sector to reflect “relative” performance to the S&P 500.

There are only three sectors to outperform, and they are listed above.

The worst performing sector was Utilities (down 7.4%) which was trailed closely by Industrials (down 7%).  That’s a neutral outcome in the Sector Rotation model.

The insight comes from noting that the “Defensive” (generally the right side of the chart minus Financials) Sectors have all underperformed the S&P 500, which could be a sign that investors are pulling out of conservative, wealth preservation stances and rotating into more risk-taking practices.

We’ll continue to watch the model for additional insights that could give us clues about the direction of the market, and where to look for trading opportunities.

Corey Rosenbloom, CMT
Afraid to Trade.com

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