Stock Exchange: How To Play Sector Rotation

Sector rotation is a regular media topic, but few really understand it. Stock moves are often described in sector terms – retail, transports, industrials, biotech, etc. You get the drift.

There has been a movement to define sectors in terms of ETFs, but the slicing and dicing was not very accurate. Trades often included companies that were not directly related to changing news or the economy. While this was not important for the ETF traders, it presented an opportunity for those who defined sectors differently from the standard ETFs – the real Sector Experts.

Oscar is our sector trader, so he is featured this week. We’ll discuss his method. We also have some interesting stock ideas from the rest of the gang.

Review

Our last Stock Exchange featured a helpful discussion on how to buy the dips. The comments were great as well. There is special value when readers engage with our crew of “technical analysts.”

Today’s Theme

Sector rotation is a common trading and investment theme, but there is little agreement on what it really means. The introductory discussion (Investopedia) is helpful, but merely a starting point. For those who understand this process, this can be a very profitable trading method. As usual, I will conclude with a brief observation about the key points.

This Week—Playing Sector Rotation

Oscar

I’m back on REIT Real Estate (VNQ) this week. You might remember I picked this one back on December 15 (during a convenient little dip). It was fine for a short term holding, but I dropped in in early January once I’d made a modest profit.

My main problem with this sector is the volatility. The 200-day moving average is basically flat, but the prices have varied wildly. While VNQ was moving sideways, I was working other sectors with more of an upswing.

Still, I try to see the big picture. This sector is way off its all-time highs, and the stock has been appreciating in value all month. I’m okay with buying in again here – so long as I keep a close eye on it.

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The Stock Exchange does not have all the answers, but it provides good ideas and a stimulus for your own trading.

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