During a rotational bull market such as the one we have been in for the past couple of years, leadership changes hands – money rolls from a currently strong sector into a formerly weaker sector or stock. I suspect that a few of the current market leaders – many of which have been defensive sectors, may begin to underperform the higher beta sectors over the winter. I believe that markets may rotate out of some of these defensive stocks and into higher beta stocks after a few more weeks of market chop. I discussed the potential for a bit of near near termed volatility in my last blog.
Defensive sectors such as utilities and consumer staples are currently in good shape – trends are strong on utilities (XLU weekly chart below) in particular, given its recent breakout
The staples sector (XLP daily chart below) is testing current resistance – its comparative relative strength is weakening a bit –it’s still on trend, but keep an eye on this sector for potential rotation
Bonds, often a defensive sector receiving positive rotation in a stock market selloff, are beginning to show some weakness. The US treasury long bond TLT ETF is weakening. Money is rotating out and the relative strength vs the S&P500 is negative after its defensive rally during the recent correction.
Keep an eye on your defensive sector holdings such as the three mentioned above. While its not necessarily the time to dump the stocks or ETF’s in these areas, you may find them beginning to under perform the broader markets over the winter. For traders wishing to maintain a portfolio of positive outperformers, you may want to rotate out of these positions upon further comparative relative strength weakness.
In my blog later this week, I will discuss some sectors seeing potentially positive rotation that may be worth consideration as new positions for traders.
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|Keith Richards, CMT, CIM, FCSI|
Portfolio Manager for ValueTrend Wealth Management
|The Great Rotation|
Tuesday, November 04, 2014 | 10:00 am – 10:45 am ETIf you want clear facts, figures, and informed opinion about 2015 coming markets and profitable strategies from one of Canada’s most respected analysts, then you must attend Keith’s presentation. Technical analyst, portfolio manager, author, columnist, BNN contributor, and a 24-year veteran of stock market madness, Keith uses straight talk and everyday language to describe his 2015 market anticipations.After a 5 year bull market, the easy money on the stock market has been made. Learn Keith’s strategies for what he sees as a multi-year “stealth” bull market ahead of us. Unlike a broad-based bull market, a stealth bull market is one of ever-changing leadership. What worked yesterday may not work tomorrow!At Keith’s talk, you will learn:1) How to identify the stocks and sectors that will outperform the markets
2) How to avoid the stocks and sectors that will underperform the markets
3) How to avoid the trap of buying near the top and selling too soon
4) Contrarian investment tools to help you identify new opportunities and stay ahead of the crowd
You can protect yourself and earn steady, conservative returns in an increasingly rotational stock market environment. If you are a conservative investor who wishes to limit your risk, and earn predictable profits in the coming years, you must attend this workshop!