• Investing
  • Stock
Round Table Thoughts
  • Economy
  • Editor’s Pick
Home Stock Sector Rotation Suggests Offense Over Defense
Stock

Sector Rotation Suggests Offense Over Defense

by November 20, 2024
by November 20, 2024 0 comment
Share
0
FacebookTwitterPinterestWhatsapp

Institutional investors tend to focus heavily on relative strength, as this is essentially how they are evaluated in their performance as money managers!  Let’s review three ways to analyze relative strength, what these charts are telling us about sector rotation as we progress through Q4.

Relative Strength Trends Show Clear Winners in Q4

I like to group the 11 S&P 500 sectors into three important buckets based on their general tendencies: growth sectors, value sectors, and defensive sectors.  Let’s focus in on the relative performance of the value sectors, with each line representing the ratio of the sector ETF vs. the S&P 500 ETF (SPY).

Two of these four sectors stand out as strengthening in the month of November, specifically the financial and energy sectors.  Both of these sectors are expected to benefit from a Trump administration, with banks facing less regulatory pressure and also a steepening yield curve.  For energy, it’s the assumption that with less support for renewable energy policies, oil and gas companies could stand to thrive going forward.

As my friend and fellow StockCharts commentator Tom Bowley once explained, “If you want to outperform the S&P 500, you need to own things that are outperforming the S&P 500.”  So by focusing on sectors that are showing stronger relative strength, we have the opportunity to outperform our passive benchmarks.

Offense vs. Defense Ratio Still Favoring Offense

I also love to use ratio analysis to compare sectors to each other, as we can then start to infer what big institutions are doing with their capital as they rotate between the 11 economic sectors.  Let’s look at one of my favorite ratios which I call the “offense vs. defense” ratio.

The top panel is the ratio of Consumer Discretionary (XLY) versus Consumer Staples (XLP), while the bottom panel uses equal-weighted ETFs for those same sectors (RSPD and RSPS).  This analysis was inspired from conversations years ago with Bill Doane, my Fidelity predecessor who ran the Technical Research team in the 1970s.  We are basically comparing “things you want” vs. “things you need”, with the idea that when conditions are good, consumers tend to spend more money on discretionary purchases.

We can see in this chart that offense is outperforming defense fairly consistently since early August.  And if there’s one thing I’ve learned in 24 years of analyzing charts, it’s to assume that a trend is continuing until it doesn’t!  So this chart certainly suggests broad market strength going into year-end 2024.

Relative Rotation Graph Indicates Resurgence in Key Sectors

No discussion of sector rotation would be complete without a nod to the GOAT of visualizing sector rotation, Julius de Kempenaer.  His RRG charts have been an essential part of my toolkit for many years, and I’m thrilled that we now have an upgraded version on the StockCharts platform with which to continue our analysis.

I’ve highlighted the two consumer sectors, which we can see support our earlier comments on offense over defense.  The XLY is trending up and to the right in the Leading quadrant, and the XLP is moving down and to the left within the Lagging quadrant.  

I’ve also selected one other comparison, which is one I’ll be watching closely as we head into 2025.  Technology, driven by the strength of software and semiconductors, is currently in the Improving quadrant.  Utilities, which has traditionally been considered as a defensive sector, sits in the Weakening quadrant.  

If and when these relative trends would begin to reverse, that could indicate more defensive positioning than we’ve seen at all in 2024.  But until and unless we see that sort of defensive rotation, my sector analysis tells me this market is poised for further strength.

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

You Might Also Like
  • While the Bears Growl, Money is Quietly Moving into Stocks
  • Energy; A Long Term Turnaround in Relative Strength is Brewing
  • Snowflake and Twilio Stocks are Surging: Here’s What to Do Now!
  • Why are Higher Interest Rates a Big Deal?
Share
0
FacebookTwitterPinterestWhatsapp

previous post
Comcast to announce the spinoff of cable networks, including MSNBC, CNBC and USA, sources say
next post
Apple Shares: $100M Investment Proposal

You may also like

Why Try To Call Tops And Bottoms? It’s Easy!

April 9, 2023

The Wisdom of Jesse Livermore, Part 4

May 10, 2023

An Awesome Breakthrough in S&P 500 and Nasdaq: Will the...

July 5, 2024

The Ord Oracle May 23, 2023

May 24, 2023

Bonds: Don’t Forget the Long-Term Trend

September 14, 2023

Cryptocurrency Prices in the Spotlight, Small Caps Now in an...

December 5, 2023

StyleButtons: The Key to an Optimized Charting Process! Here’s How...

September 9, 2023

Is Aflac Set to Surpass Analysts’ Targets? Find Out Now!

May 31, 2024

Bearish ADX Signal on S&P Plays Out – Now What?

March 12, 2025

Fasten Your Seatbelts: Earnings Season in the Spotlight

July 8, 2023

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Nvidia results spark global chip rally

      May 30, 2025
    • Boeing to resume airplane deliveries to China next month, ramp up Max production, CEO says

      May 29, 2025
    • Nuclear Power Trio: OKLO, SMR, and CCJ in Focus

      May 29, 2025
    • Analyzing SIL, USO, and NVDA: Could These Bullish Patterns Trigger?

      May 29, 2025
    • E.l.f. Beauty to acquire Hailey Bieber skin care brand Rhode in up to $1 billion deal

      May 29, 2025

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be...

      June 27, 2024 2,764 views
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as...

      August 9, 2024 2,470 views
    • 3

      Biden appointee played key role in recruiting Chinese...

      June 25, 2024 2,450 views
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful...

      July 10, 2024 2,429 views
    • 5

      Harris VP pick spent years promoting research facility...

      August 29, 2024 2,307 views

    Categories

    • Economy (7,009)
    • Editor's Pick (2,104)
    • Investing (538)
    • Stock (2,578)

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be revived under new House GOP bill

      June 27, 2024
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as Harris camp blasts ‘lying’ critics

      August 9, 2024
    • 3

      Biden appointee played key role in recruiting Chinese businesses to Delaware: ‘Longtime friends’

      June 25, 2024
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful of Chinese spy threats

      July 10, 2024
    • 5

      Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

      August 29, 2024

    Latest News

    • Nvidia results spark global chip rally

      May 30, 2025
    • Boeing to resume airplane deliveries to China next month, ramp...

      May 29, 2025
    • Nuclear Power Trio: OKLO, SMR, and CCJ in Focus

      May 29, 2025

    Categories

    • Economy (7,009)
    • Editor's Pick (2,104)
    • Investing (538)
    • Stock (2,578)

    Disclaimer: RoundTableThoughts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 RoundTableThoughts.com. All Rights Reserved.

    Round Table Thoughts
    • Investing
    • Stock
    Round Table Thoughts
    • Economy
    • Editor’s Pick

    Read alsox

    Semiconductors Making Big Breakout

    March 16, 2023

    Fight This Bullish Development At Your...

    May 28, 2023

    Is Overbought Really Bearish?

    December 9, 2023
    Sign In

    Keep me signed in until I sign out

    Forgot your password?

    Password Recovery

    A new password will be emailed to you.

    Have received a new password? Login here