U. S. Sector Trends

Yesterday I shared my observations of the overall stock market in The Stock Market Trend. Here are my observations of U. S. Sector trends to see which sectors are trending, which sectors have experienced declining momentum, and where they are year-to-date. Keep in mind, I use the actual index ETFs for observations since they represent real-world price trends including expenses, none of this is advice to buy or sell any of them for anyone.

Below are the sector trends year-to-date.

SECTOR ETF TRENDS TREND FOLLOWING MOMENTUM RELATIVE STRENGTH

Ok, I know that looks like a hurricane spaghetti chart to show potential cyclone paths, so here is a table showing the year-to-date price trends using the Select Sector SPDRs. In 2018, Healthcare, Consumer Discretionary, and Technology are still the leading sectors. I’ll point out the divergence with sectors like Basic Materials and Consumer Staples lagging in relative momentum.

SECTOR ETF MOMENTUM TREND FOLLOWING

A more interesting view is a visual observation of drawdowns year to date and recently. Here, we see that Basic Materials, Communication Services, Financials, and Consumer Staples are down over -10% from their highs.

dradown stock market year to date

For a stock market decline to stop and reverse, it has to reach a low enough point to attract enough buying demand to support higher prices.

The good news is the stock indexes, and many of these sectors are testing their longer-term trend lines. At the same time, they are reaching a point we could see at least a short-term reversal up from here.

Only time will tell if the recent price declines are just a correction in an ongoing uptrend in the U. S. stock market or the beginning of a more significant downtrend.

As a portfolio manager, I am a risk manager and risk taker.

The only way to create gains is to take some risk. The way to manage risk is to predefine how much I’m willing to lose in advance. My focus is on asymmetric risk/return. So, my objective is to take a risk when it is more likely to result in positive asymmetry.

The essential parts necessary to create asymmetric risk/return are:

Risk manager: decide in advance at what price to exit as a declining trend to manage the size of the loss. Determine how much of our portfolio we are willing to lose to see if price trends will become profitable.

Risk taker: decide when to enter a position to take that predefined risk to see if the potentially profitable trend unfolds in our favor to become a profit.

You can probably see how these market cycles and trends create both the potential for risks and rewards and we can decide how to tactically operate with them.

Mike Shell is the Founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Global Tactical.

The observations shared on this website are for general information only and are not specific advice, research, or buy or sell recommendations for any individual. Investing involves risk including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. Use of this website is subject to its terms and conditions.

 

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