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.

4 comments:

  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?

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  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.

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  3. By the way, I'm quite struck by the price action on March 8 (sector change date) for XLU and XLI... http://dl.dropbox.com/u/55723305/XLU-vs-XLI-since-march-8.png

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

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