Trading the Rotation
- Posted by Greg Harmon
- on November 22nd, 2013
So it seems that a large swath of traders are now coming around to the idea that the market may just correct through rotation instead of a pullback. A correction through time if you will. If you are one of them what do you do about it? Look for what is rotating. Typically you would look for underperforming stocks and sectors and buy them while selling those sectors or stocks that have outperformed. The performance chart below is a good place to start. It shows the performance of 4 sector ETFs, Energy ($XLE) Financials ($XLF), Industrials ($XLI) and Consumer Staples ($XLP), plotted against a constant S&P 500 ($SPY). What does it show? Consumer Staples have outperformed and are now giving back that
excess as the Financials which have under performed are soaring higher. In the second pair, the outperforming Industrials have not yet started to revert towards the S&P 500 but have stopped adding to their outperformance, as the underperforming Energy sector has stopped losing ground. This is the place to look for the next opportunities in the rotation. From Industrials into Energy.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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