I view this market as very fluid. Ain’t no more buy n’ hold, folks. You need to rotate in and out of the market via macro decisions (stock exposure vs. cash). You also need to rotate in and out of sectors. Today we will talk about two sectors that are worthy of consideration within the sector rotational strategy. Remember, though. Its all about rotation. Trooper sang “We’re here for a good time. Not a long time.” That about sums it up.
I’ve made it clear via this blog that one rotation we at ValueTrend are doing is back into materials – having played them very profitably between 2020 – to early 2022. We sold in early 2022, but we are buying back in of late. Two other sectors we are reviewing with opportunistic looking charts are the US utility sector and the Canadian banking sectors. Both of these sectors can also offer a dividend yield, sweetening the pot. Lets take a look:
Lets start with the seasonal picture. Now, keep in mind, that seasonals are a tendency. Not an absolute. If the tendency for a sector is to be positive, as utilities are, between March and May – that cold mean that its worked 70% of the time. Not all of the time. However, its worth knowing that the time to buy the sector, if that cycle repeats, is approaching. Fundamentally, rising rates are not good for the sector. But, hints of rates flattening may be interpreted by markets as bullish.
Here’s the XLU (US utility ETF) chart. Its in an uptrend, but needs to prove it can hold the trendline and needs to prove it can hold that line before I buy:
Here’s the Cdn utility ETF, which is clearly in a base, for contrast. One must wait for a breakout before buying, in my way of doing things:
Here’s the CDN bank seasonality via the ZEB (equal wt) bank seasonality chart. Note that seasonal are rather flat for the sector until the fall/winter.
Here’s the ZEB chart. Note that it is just on the cusp of a breakout. Follow-up of that breakout would imply a return to the old highs near $42. Or higher. That’s about 15% return, which, if it moves in the next 1-2 months, ain’t too bad.
The US banks have yet to break out:
But the XLF US financials (which includes brokerages, etc) have broken out nicely. A better looking chart.
The seasonal trends look better for this group too:
These sectors are worthy of watching for a position if the breakouts continue in the right direction. But don’t forget, you need to be playing the Trooper song in the background while trading anything these days. Here’s the link to the song and lyrics.
The link to the lyrics was a great touch. Listen and they describe the current stock action to a T. Well Done!
The sun can’t shine every day….🎵
I’ll be humming that tune all day😉
Did you catch by any chance or can you pull up the interview on Bloomberg Surveillance this morning with Peter Tchir from Academy Securities Head of Macro Strategy?
I am not going to pretend I understood fully what he was talking about -LOL But what really caught my attention was when he talked about the VIX (28-30 day options) versus the sheer volume of not only weekly options but now daily options trading. He was saying that the VIX really isn’t capturing the risk trading now with the volume of weekly and even more so daily options being traded currently. Traders, including institutional desks, are now participating in daily options trading, and gambling big time.
If you missed the interview, see if you can pull up the interview. I think that you would get a lot more from the interview than I did and find it very interesting.
The information only supports your comment of how fluid the markets are right now.
As of the close on February 16th the s&p 500 failed to make a new high at 4200 and is now under $4,100. It looks like the market is rolling over now.
We like to give it a few days before acting-
$natgas went down again today, do you see $1.52 as the next floor?
If it stays below $2.40 for a few more days that is a potential