Category: Uncategorized

A look at sectors’ RS reveals a lot about the current market sentiment. In the following charts I am comparing each of S&P 500 main components to SPY itself. When the featured sector is outperforming the broad index, the line is rising.

When the market is in defensive mood, utility companies tend to outperform. Due to the nature of their high leverage, utility stocks tend to benefit during periods of declining interest rates’ expectations.

It pays to highlight that since end of July 2010 $XLF has been underperforming the broad index and leading the way down.

Despite the long bond ($TLT) and Japanese Yen ($FXY) making new 52 week highs on a weekly basis, the material sector (led by gold, silver miners and fertilizer companies) has been outperforming the SPY since mid June.

[youtube=http://www.youtube.com/watch?v=m_iKg7nutNY&hl=en_US&fs=1&rel=0]

If you don’t have a plan, you will become part of someone else’s plan. Battles are won before they are fought.

After a sharp decline, some stocks can have short-term bounces or rallies; however, in my experience few stocks bottom out when you expect them to do so. And, even if they do bottom, often they simply move sideways for an extended period, wasting valuable time. There are periods in the market when the reward to aggravation ratio is just not worth your valuable time and capital.

If you’re looking to find the next big market winners—the market leaders—then you want to keep your eyes peeled for the stocks that hold up the best (not the worst) during a market decline, and then buy them as they emerge from the market’s wreckage and move into new high ground. This will occur AFTER the stock’s price undergoes a consolidation period of several weeks or more.