Sector Detector: Bulls Leverage Hopeful News To Launch A Tepid Breakout Attempt

6.  Overall, this week’s fundamentals-based Outlook rankings continue to look neutral, as defensive and economically-sensitive sectors are mixed about in the rankings. Defensive sectors Utilities and Consumer Goods/Staples are both in the top five. However, I am seeing a glimmer of bullish hope in that the top two Outlook scores also sport the highest Bull scores, and Industrial and Financial seem to be subtly gaining some strength in the rankings. We’ll see how this plays out over the next couple of months.

These Outlook scores represent the view that the Technology and Healthcare sectors remain relatively undervalued, while Telecom and Consumer Services/Discretionary may be relatively overvalued based on our 1-3 month forward look.

Stock and ETF Ideas:

Our Sector Rotation model, which appropriately weights Outlook, Bull, and Bear scores in accordance with the overall market’s prevailing trend (bullish, neutral, or bearish), suggests holding Healthcare, Technology, and Financial (in that order) in the prevailing bullish climate. (Note: In this model, we consider the bias to be bullish from a rules-based trend-following standpoint because SPY is above both its 50-day simple moving average and its 200-day SMA.)

Other highly-ranked ETFs from the Healthcare, Technology, and Financial sectors include PowerShares Dynamic Pharmaceuticals Portfolio PJP, First Trust Technology AlphaDEX Fund FXL, and Market Vectors Mortgage REIT Income ETF MORT.

For an enhanced sector portfolio that enlists top-ranked stocks (instead of ETFs) from within Healthcare, Technology, and Financial, some long ideas include Lannett Company LCI, DepoMed DEPO, Skyworks Solutions SWKS, Broadcom BRCM, Capstead Mortgage CMO, and FirstMerit Corp FMER. All are highly ranked in the Sabrient Ratings Algorithm and also score within the top two quintiles (lowest accounting-related risk) of our Earnings Quality Rank (a.k.a., EQR), a pure accounting-based risk assessment signal based on the forensic accounting expertise of our subsidiary Gradient Analytics. We have found EQR quite valuable for helping to avoid performance-offsetting meltdowns in our model portfolios.

However, if you think the market has come too far and you prefer to maintain a neutral bias, the Sector Rotation model suggests holding the same three: Technology, Healthcare, and Financial (in that order). Surprisingly, if you have a bearish outlook on the market, the model suggests holding Healthcare, Technology, and Consumer Goods/Staples (in that order).

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The author has no positions in stocks or ETFs mentioned. The materials available from us are published solely for informational purposes. They are not to be construed as advice or ...

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