What does the performance of S&P 500 industry sectors
telling us right now? For one, the recent sell-off that took down
the S&P 500 and Dow Jones Industrial Average a few percentage
points looks very different than recent pullbacks.
While most everyone is breathing a sigh of relief after last
week's rally brought the S&P and Dow back near all time highs,
the lack of a similar result in the other, higher beta, indices
should keep prudent investors skeptical.
From their peaks in early March, the Nasdaq (NASDAQGM:QQQ) and
Russell 2000 fell over 7% and haven't rebounded near as healthily
as their less volatile counterparts.
Digging deeper, we can see what really is occurring is a larger
trend change out of growth stocks and into value shares.
Sector Rotation Model
Over the past 75 days there have been two sectors that have seen
a dramatic shift in their performance returns.
The chart below shows what has occurred year-to- date in the
nine S&P 500 sectors with two very large standouts.
The Utilities sector (NYSEARCA:XLU) shown in purple on the left
has greatly outperformed all the other sectors. You'll also note
how stocks in the consumer discretionary (NYSEARCA:XLY) sector
(shown in red) like Amazon.com and Home Depot
As was discussed in our just released
2014 ETF Profit Strategy Newsletter
, this kind of shift out of the more traditional risk on sector,
cyclicals, and into the risk off sectors of utilities and energy
(NYSEARCA:XLE) has only been seen three other times in the past ten
years. Utilities are now outperforming cyclicals by over 15%
over the four month period, which has only previously occurred
during times the S&P and Dow were in the midst of 20%+
A massive shift out of high flying sectors and into the safer
areas of the market is already under way and may be warning of a
larger trend change brewing in the markets.
One Way to Protect
After exiting our April VIX trade (NYSEARCA:VXX) on April 7
for a 21% profit, we think it's time again to look at the VIX as
inexpensive insurance. Last week's rally brought the
VIX's price back to levels of long term support and in an
area we've been able to pounce with profitable trades.
The VIX has been surging every two months from certain price
levels, something we have been able to take advantage of numerous
times over the past year. Some of the VIX trends we follow
are discussed in more detail in our previous article, "
Ready for the Next Surge in Volatility
Something we monitor each week in our subscriber accessed
Technical Forecast, when the VIX falls to levels near where it is
now, buying volatility keeps downside risk relatively low compared
to upside potential, resulting in the kind of high probability
trades and profits we like. ETFguide's readers always get
the exact strike prices, expirations, and ticker symbols of
our VIX entries and exits.
Given the increased risk of a market (SNP:^GSPC) continuing to
look for safety over growth, this makes the defensive VIX trade
only that much more attractive.
The ETF Profit Strategy Newsletter uses proprietary
research to stay ahead of market trends.
Sector rotation trends suggests the recent pullback is
very different than ones from recent history, making portfolio
protection a priority. Also, the shift from growth to value could
be part of a larger defensive trend change in the market's
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