Where the river flows: Sector and group performance the past few weeks.

The past 1 month performance across most major sectors goes to the Financials (XLF) with a monthly performance of around 7.7%. (Financials posted the best overall performance for the past year).  Next in line are the Conglomerates and Industrial Goods putting in gains of 5.8% and 4.9 % respectively. Basic Materials (XLB) and Services are neck in neck at 4.2%. Consumer Goods and Technology at 3.1 % even with Healthcare at 2.55% and Utilities at 2.1 %.

The past week we have seen a nice advancement in the $SPX from around the 1450 level to 1471. For a two week run, the cash went from just north of 1401 to 1471. The best performers last week shifted as financials took a back burner coming in third place at just under 1% as technology shifted up slightly at just over 1% and Healthcare exploded onto the scene last week posting a 2% gain. Basic Materials, thanks to most of the energy stocks (XLE), dipped in the red last week with a -.4 % loss. Also, as money flowed into potentially risky assets, the high yield and safe plays of the Utilities was a -.6 % return last week.

So how do we manage all of this information?

The sectors and groups can be listed by tracking their exchange traded funds (ETF) for each sector: XLF, XLB, XLI, XLE, XLK, XLU, XLV, XLP, XLY, and XLB to name a few of the major ETF’s I like to track.

Next, look up the top 6-10 holdings in your favorite ETF and rank them by weight within the ETF. For example, XLK holds ~ 19% of AAPL with MSFT and IBM next in line at 8%, T at 7.3% and GOOG at 5%.  So obviously when AAPL moves,  so does the technology ETF – XLK.

What’s the next rotation going to look like? Most of the time, the rotations into groups / sectors start with a positive fundamental and macro view for the top 2-3 players in each group. As the fundamentals look like they are shoring up, big money will start to test the waters. The phases roll into a broader number of stocks as the groups start to move in tandem. Seasonality aspects, fundamentals, technical’s and the ability for risk to expand and create a pure momentum play in specific groups. Groups with one or two leaders will make the moves. Many times, these momentum moves fade but will come back in two or three weeks again showing their true colors as dips are bought and money looks to verify the analysis being pushed. Examples can be seen in energy stocks or specialty chemicals as Basic Materials gain ground or Industrial Goods gain ground. Also, don’t underestimate the power of the commodity moves as grains,  softs ect… show their strength or weakness and correlate the commodity plays to the asset classes that have a direct impact. Often commodity move lead the equity moves. Prime examples are diversified chemicals and Agricultural Chem’s or machinery stocks.

This next sector rotations will be driven by earning season and seasonality pays so lets watch the next 2 -3 weeks for those sectors and / or ETF’s that are at the top of the list for the next couple of weeks. This can lead to larger gains in those groups for the spring trading season.

Nick Pirraglia


Disclaimer: The material provided is purely for educational purposes only. No information contained herein is a solicitation or offer to buy or sell any securities. The information provided is in no way investment advice from Nick Pirraglia, TradersThinkTank or any other contributed content. The opinions, analysis and commentary on this website are purely the subjective views of the author. Nick Pirraglia is not a Registered Investment Advisor and under no circumstances should any content from this site be used as investment advice, recommendations, or trading advice. Please consult your financial advisor prior to making investment decisions.

About Nickolas Pirraglia

Nick Pirraglia started his career in trading in 1991 after returning to the US as an Army Officer deployed in Iraq. He began as a bond broker and worked his way into trading. Expert mentoring, hard work and a disciplined approach to the markets has allowed Nick the ability to maintain a very successful career in Capital Markets and Trading for over 20 years as a professional OTC Market Maker and independent trader. Nick has also managed the trading desks for a two Dallas based capital management companies and traded equities for a Dallas based hedge fund. Nick has trained and mentored thousands of customers in the rigors of trading, technical analysis and risk controls. Recently, Nick had broadened his market experience through the design and product management of two automated trading platforms. He has the pleasure of working with some of the brightest minds in the trading community and has collaborated with experts in data, design, engineering and trading psychology. An avid long distance runner, Nick completed several marathon events, qualified for the Boston marathon, completed several long distance Triathlons to include finishing a full Ironman triathlon.
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