Sector Performance in Q1

Expanding on the theme of the previous post talking about sector rotation, today I am going to take a closer look at the strongest and weakest sectors since the beginning of 2012. Below is a small table that gives the approximate returns for the major S&P sectors since the beginning of the year as well as for the month of March:

ETF       %Return YTD      %Return March
XLB               10.5%                       0%
XOP               8%                           -4%
XLE               4%                           -4%
XLI                10.5%                        0%
XLF               20%                           7%
XLP               5%                             2.5%
XLY              14.5%                        4.5%
XLV              8%                             4%
XLU             -2.5%                          0%
XLK             17.5%                         4%
XRT             15.5%                         4%

Glancing at the numbers above, it is easy to see where you would have wanted to be invested since the beginning of 2012 and where you would like NOT to have your money. The winners in Q1 were XLF, XLK (heavily weighted by 19% AAPL), XRT, and XLY with the lone under performer being the defensive XLU. The strength continued throughout March for all 4 of these leading sectors with sharp under performers being energy, XOP and XLE.

Below is a daily chart of the best performing sector, XLF (charts of the other leading sectors look similar and it would just be redundant to include them also). This (as well as the other leading sectors) is a textbook example of where you would want to have your money invested, and why. But if you were not lucky, or smart, enough to get in back then at least now you can see the strong trend and underlying strength. Therefore to trade with the trend, look deeper into the holdings of each of the leading sector ETFs to find stocks to trade on a buy-the-dip mentality.

Conversely, the sectors that you would want to avoid, or be underweight in, are XLU and more recently XOP and XLE. Long only traders would want to either totally avoid buying in these sectors or selectively sell longs in these sectors, while aggressive traders can look for counter-trend shorting opportunities. Again, trading with the trend to maximize profit potential.

To illustrate this, I have included the daily chart below of the XLE. It started the year nicely but has since underperformed poorly. Just Friday, XLE finished the quarter testing its 200day sma where it needs to hold to avoid being sold lower.