Friday, March 8, 2013

03/08/2013 Sector Change

The sector model has gone through a lot of whipsaws this week.  It is no longer long XLU (utilities), but is now long XLI (industrials).

Although technically a "bullish" sector, XLI is also historically associated with a correction.  The average annualized return rate for the S&P during an XLI selection is -11.18%.

Could be different this time, but a bit of caution is prudent.

Incidentally, I do check the sector model each week before the close on Friday, and will post any changes here in real time.


  1. AFAIK prominent corrections during bullish periods are par for the course. If the S&P average return is negative during XLI selections, wouldn't it make more sense to examine a market-neutral position?

  2. The negative historical returns are for SPY, not necessarily for XLI.

    A hedged version of the model would call for a short position in XLP, but after a number of requests to avoid hedging on the blog, I've kept it long-only.

    I'm working on a separate venue for hedged positions. It's not open yet.

  3. By the way, I'm quite struck by the price action on March 8 (sector change date) for XLU and XLI...

  4. Interesting. Not much advantage yet. XLI is always a weird one. Don't know why.