Est. 2002

Economic sector and industry rotation relationship trading.

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Watch a dynamic demo of interest rate fluctuations and especially an inverted yield curve and its effects on the market... here.

     You benefit from this rotation by being able to identify which sectors are going up or down establishing a trend.  A trend up is higher highs and higher lows and a downtrend is lower highs and lower lows.  We are not interested so much in the day-to-day rotation as we are in trending rotation, i.e. those sectors leading the market up/down over a verifiable trend and time.  In short, a trend that has substance or legs to it.

     Though this daily sector rotation might appeal to day traders, the sector rotation I'm speaking of is more basic than that and tends to be of much longer duration because it is tied to changes in the economy which happen over time not overnight.  I am looking for those sectors that have been pushing the market in one direction or another in recent weeks, if not months.

     I review the rotation behavior weekly during my routines.   Probably the most comprehensive of sector rotation sites are www.stockcharts.com and www.barchart.comI will show you how to use these during our sessions.  For ALL the sector/industry symbols known to man visit stockcharts.com on this specific page, click here.  These are great sites to spend time on the weekend seeking trades in the right sectors for the coming week.

    If big institutional money moves the markets, shouldn't you be following that money?  Institutional money managers are not day traders.  They are following the sector strengths and weaknesses looking forward to a perceived environment for many months in the future because of basic changes in the economy and thus trends develop.  You and I know that prices rise and fall in a longer term trend.  Of course we traders want to take advantage of that.

      Is it even possible to be short the sector that is being drained while I'm long the sector that rising?  Yes.  Ultimately, I am trying to identify and participate in those sectors that are pushing the broad markets.  Could you enhance your trading by working in these sectors, the sectors that in fact are gaining or losing so much big, big money that their momentum has a life of its own?  I believe you can and should.

     You must stay on top of the rotation to see the big picture.  Ultimately, you will have a stock, a sector and a market all going in the same direction.  Pull up all three charts, the S&P500 chart, the sector chart you're interested in and the stock chart at the same time.  Do they support each other?  If so, you have just enhanced your probabilities...isn't that what we're trying to do, to put the odds in our favor?

      Rotation occurs through many time periods.  As swing traders we are concerned with the trends this week or the past few weeks. The government announces 27 indicators about the health of the economy every month.  They move markets-  they can and do induce rotation, sometimes for a short time, sometimes for many months.

sector rotation events

Consumer Expectations:   
Industrial Production:        
Interest Rates:                 
Yield Curve:                     

Full Recession
Bottoming Out
Early Recovery
Bottoming Out
Normal (Steep)
Full Recovery
Rising Rapidly (Fed)
Flattening Out
Early Recession
Falling Sharply

     Study the Yield Curve and you can see the relationship between rising and falling rates to the stock market.  You need to be aware of where we are in these cycles...if you simply read the daily/weekly market recaps you'll find out.  Where are we now? 


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