Sector Rotation: Investing In The Current Economy
I find it amazing that there is a debate raging about whether or not the US economy is in a recession or not. The concept of sector rotation has been around for many years, and although some academic economists dismiss its value, history clearly supports sector rotations validity.
If you are not familiar with the concept of sector rotation, here is a great article about Top Down Investing that does a great job of explaining sector rotation.
Using Sector Rotation Model To Understand Where We Are in the Economic Cycle
There can be little doubt that the economy ebs and flows in a continuing cycle of highs and lows. It should be obvious that I believe the essence of sector rotation, and that it can be used to identify wheter or not the economy is in a true recession. The table at the following table is a list of the relative strength of each sector taken from clearstation.etrade.com
| Sector | RS |
| Healthcare | 1 |
| Consumer Non Cyclical | 2 |
| Transportation | 3 |
| Technology | 4 |
| Consumer Cyclical | 5 |
| Services | 6 |
| Captial Goods | 7 |
| Utilites | 8 |
| Conglomerates | 9 |
| Basic Materials | 10 |
| Financial | 11 |
| Energy | 12 |
As you can see, the best performing sectors are currently Healthcare and Consumer non-cyclicals followed by transportation. On the sector rotation model, this puts us somewhere between early recession and middle recession. So like I said, how can there really be any debate.
How To Trade This Information
Once oil and natural gas prices settle out, I would expect utilities to start showing some strength. followed by a recovery in the financials. I would pick best of breed stocks in these sectors on any dip. You could also trade healthcare until we see the relative strength start to dip. My suggestions:
Healthcare - CMED (China Medical)
Utilities - PGN (Progress Engery)
Financials- GS (Goldman Sachs)
If You Like Our site: Automatically Receive Updates To RecordPriceBreakout.com Via Email. Thanks for visiting!
(No Ratings Yet)
Loading ...
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor
This commentary was extremely helpful. I had been looking for a reliable way to pick up on sector rotation, and combining this RSI information with an indicator based approach is solid. Read though your other posts and found them helpful as well — will be looking forward to future updates.
thnx
@Allen - Thank you for the kudos. I’m looking through Investing World Today Right now.
@Brandon
I’m really glad you liked the article / video on sector rotation. I have another article & video that I will be posting very soon, but you can feel free to take a look at the low definition version (youtube sucks, but it’s popular) here:
http://www.youtube.com/v/y8eXu1oloQA&fmt=6
[...] Sector Rotation: Investing In The Current Economy [...]
How long have you been in this business? By the looks of your content, it seems like you know what you are doing!
first I would like to say that I love the site. Its my first time here. Its the first time Ive seen sector rotation given any credit. Its explained in a simple and concise way too.I am going to further study the work by Elaine garzarelli.( funny thing is that Ive been developing a trading system/model like hers. I wish I would have come across her work sooner, as it would have saved me a lot of time trying to reinvent the wheel.) But the other metrics Im trying to incorporate into her my/her model is that of productivity, debt levels, savings, and other economic growth metrics. I am also a student of the austrian school of economics, and would like to incorporate. What do you think are some good metrics that can be placed in this bin. Peter schiff has done some great work and so has tomas woods from the von mises institute. Unfortunetely the concepts regarding saving being funneled into unustainable means of production, and ultimate wealth destruction I dont have a firm grasp on. If I could find metrics for these concepts that then could be used as a fifth component to what elaine has already done, I believe that my investment system would be complete. Any thought on this would be greatly appreciated.
Again congrats on the site.