Welcome Stockaholics!

We are a new and fast growing financial forum! Sign up for free and let's talk stocks!

  1. Do you want to help develop this community? We are looking for contributions from investors and traders like you! What stocks do you follow? What is hot right now? Sign up and get in on the ground floor of the newest, fastest growing financial forum!
    Dismiss Notice
  2. You will notice a live chat widget on the right. Click in to join us and lets hear about how you nailed that last UWTI trade!
    Dismiss Notice

SPDR sector rotation stradegy... by Jrich

Discussion in 'Trade Journals' started by Jrich, Aug 25, 2017.

  1. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    Its a well known fact that the S&P 500 is the benchmark for American equity markets and the bar set for most American investment firms.... Its also widely known that 80-90% of investment firms fail to outperform this benchmark

    But there is a strategy that enables simple folk like you and me to beat the market... Enter sector rotation

    Its beauty lies in its simplicity... In essence, this strategy tracks the S&P 500 but cuts out the fat... By holding only the top performing sectors and dropping the laggers, you can potentially outperform the market by 2% or more yoy

    This article explains in further detail

    https://seekingalpha.com/article/3173636?source=ansh

    Ive decided to utilize this strategy with my 401k plan... Ill check back here occasionally to post thoughts, actions and results...... Feel free to chime in with questions or suggestions at any time

    Thanks... Jrich
     
    #1 Jrich, Aug 25, 2017
    Last edited: Aug 25, 2017
    OldFart, fireopal and T0rm3nted like this.
  2. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    The article calls for holding the top 5 sectors, but since my 401k is still a baby, it doesn't make sense to split it 5 ways.... So ill make selections as i go along, reorganizing monthly or quarterly as necessary

    Here are the top 4 performing sectors over the past 9 months

    XLK (blue) = Tech
    XLU (purple) = Utilities
    XLV (pink) = Health Care
    XLF (green) = Financials
    Screenshot_20170825-200953.png

    But there are also 20 sub-sector ETFs that SPDR has to offer... And one has captured my interest due to a change in political environment and recent global affairs

    XAR... Defense and Aerospace ETF, with top holdings such as BA, LMT and RTN, i feel this is a no brainer...... XAR is my first selection

    Here is XAR stacked up against the same 4 top performers

    Screenshot_20170825-201026.png
     
    OldFart and T0rm3nted like this.
  3. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    Update

    I decided to dump XLK (tech), i think we're all anticipating that long awaited pull back in the market, my target is 2590, only 40 points away, and i would predict tech to lead that pull back

    Im down 3% on XLU, but the quarterly dividend almost evened that out

    Up over 10% on XAR!... Makes me smile every time i peak at my watchlist :D

    9 month leader chart has changed since my last posting... XLF and XLU have dropped off.. XLB (basic materials) is neck and neck with XLI (industrials... not shown)

    And ive added XAR just because i like looking at it;)

    Screenshot_20171006-133203.png
     
    twerpner likes this.
  4. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    Well looks like i missed my shot at adding to my utilities position..... i tried to call the bottom, had a bid sitting @ $52.50 for a few weeks now.. i was off by 7 cents

    Win win i guess... who complains about their stock going up?

    Screenshot_20171010-150014.png
     
    OldFart likes this.
  5. B Russ

    B Russ Active Member

    Joined:
    Sep 25, 2017
    Messages:
    189
    Likes Received:
    126
    Do the ones holding shorts on said stock, count?:D thats a shame missing by such a narrow margin though.
     
    Jrich likes this.
  6. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    Shorties and put buyers definitely count ;)

    I moved that bid up to $53.50.. Long top wick on todays bar, might get another bounce lower coming up
     
  7. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    Sweet!... now that I'm on Tradingview, I can track all 9 of the sectors instead of just the top 4.... so heres 2017 in a snap shot

    XAR isn't on the chart, just the main sectors, but I'm still holding, double my original position and up about 15%.... XLU (purple) is dragging me down, so I'm looking to rotate into XLF (green) early in the new year

    spdr dec 17.png
     
    T0rm3nted and OldFart like this.
  8. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    Rotation completed... ive dumped my utilities position at about a 2.5% loss factoring in dividends

    That capital was split between new positions in XLF and XLE

    Energy (XLE) being a roll of the dice, the sector is still lagging on the 2 year chart, but is now a leader on the 6 month, and i forsee a big year ahead..... Financials (XLF) have fallen off the 6 month chart in favor of materials (XLB), but im already up 1% in 2 days there

    Btw, still heavily weighted in XAR..... that one you'll have to pry from my cold dead hands!


    Screenshot_20180105-200338.jpg
     
    Onepoint272 and T0rm3nted like this.
  9. Onepoint272

    Onepoint272 Well-Known Member

    Joined:
    Apr 26, 2016
    Messages:
    982
    Likes Received:
    721
    XAR has been powerful. I let ARNC go a little too early and hoping for a pull back soon. Here are the top 10 holdings of XAR by weight:

    upload_2018-1-13_22-42-14.png
     
    T0rm3nted and Jrich like this.
  10. Onepoint272

    Onepoint272 Well-Known Member

    Joined:
    Apr 26, 2016
    Messages:
    982
    Likes Received:
    721
    BA appears to be the top performer over the last year in that XAR-holdings list....but....I show a P&F target of $356 and it is now at $336....only about 6% to go higher. May want to keep an eye on that....BA may become a drag on the sector.

    Also, the last and highest stepping stone objective I have on LMT (also in the XAR) is $348. It is currently at $336; only 3.5% to go.

    As for the banksters, the last I looked, BAC is the leader in the XLF and BAC has only 6% to perhaps as much as 15% to go higher.

    The bottom line is that money may start to rotate out of the XAR and XLF sectors in a few weeks but for the short term they look real good.
     
    #10 Onepoint272, Jan 14, 2018
    Last edited: Jan 14, 2018
    Jrich and T0rm3nted like this.
  11. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    XAR does look to be topped out at the moment, already over run the higher $85.50 target... nothing a little more consolidation cant fix

    while XLE has a few points to run to reach an $81 target... looking to up my position on payday... while trying to keep about 15% in cash, for BTFD (worked out well last year)

    XAR jan 14.png xle jan 12.png
     
    Wolfy, T0rm3nted and Onepoint272 like this.
  12. Onepoint272

    Onepoint272 Well-Known Member

    Joined:
    Apr 26, 2016
    Messages:
    982
    Likes Received:
    721
    Nice work @Jrich. I was looking at XLE components CVX and OXY and they are at or very near their price objectives. Your work confirms my suspicions about energy. Perhaps the broad market is due for correction in the coming weeks...maybe then we can get a better picture of what is setting up for new leadership.

    Great thread, keep up the good work.
     
    Jrich likes this.
  13. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    so ive been busy busy with my portfolio lately

    I recently became aware that Fidelity offers their own batch of sector ETF's... not only are the fees lower (.085 vs .14),but since my account is through Fidelity, they are COMMISSION FREE (caps, cause that's a big deal)...... researching the differences, these ETF's are built off the MSCI index instead of the S&P 500 like the SPDR's, with a mixture of 2,400 large/mid/small cap stocks, placing 70ish holdings per sector (except financials, which holds ~400), but the top 10 weighted holdings in each is almost identical to the SPDR's, so they nearly mirror the SPDR charts

    my only reservation was liquidity, with a some sectors trading as few as 100,000 shares a day, but I'm not exactly high frequency trading here, and the spreads are reasonable (~$0.15)..... so I decided to start rebalancing, with a slightly new strategy

    I noticed when I sold XLU that I had completely given up my cost basis from 5 months ago and basically started all over in my new positions.... doesn't seem like a big deal, until you think years into the future... so going forward, my strategy is to hold all 10 sectors and adjust my weighting in accordance with sector performance... this way ill be perpetually building up a favorable cost basis in each sector and will limit sacrifices due to rotation

    ill list the new tickers (and colors ive designated for each) for reference to future charts, and going forward ill just refer to the sector names to avoid confusion

    FDIS = consumer discretionary (yellow)
    FNCL = financials (bright green)
    FIDU = industrials (orange)
    FTEC = technology (royal blue)
    FHLC = healthcare (pink)
    FENY = energy (red)
    FSTA = consumer staples (light blue)
    FMAT = materials (brown)
    FCOM = telecom (dark red)
    FREL = real estate (dark green)
    FUTY = utilities (purple)

    and here they are on the 6 month chart as of today

    leaders: tech, discretionary, industrials, financials
    laggers: telecom, utilities, real estate, staples

    sector feb 2.png
     
    T0rm3nted and Onepoint272 like this.
  14. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    market sentiment.... bearish

    going back to 2015, consolidation on a $10x3 P&F chart shows a target between $3,310 and $3,500... following the trend channel up, this target range is attainable between July and December 2019.... but as of right now, SPX is in over bought territory... it could find support at 2,800 and continue on euphorically..... but my money says its more likely to pull back into the proper channel...... to reach the demand line would require about a 10% correction to 2,600...... but my gut says mid channel is a more reasonable projection, which would give us about a 5% pull back to 2,700.......... that's my story, and I'm stickin to it:cool:

    my weighting right now:
    ~20% consumer discretionary
    ~20% energy
    ~8% financials
    ~40% XAR (yea, I'm keepin that one)
    ~12% cash


    spx feb 2.png
     
    T0rm3nted and Onepoint272 like this.
  15. Onepoint272

    Onepoint272 Well-Known Member

    Joined:
    Apr 26, 2016
    Messages:
    982
    Likes Received:
    721
    That's a pretty good story...or at least you tell it good :) and you might be right. Zooming in to the daily, on the ES (the S & Pee futures) I was looking for a test of 2809.50 which was hit today, Thursday. I suppose it may want to touch that 2808.50, but then I expect a bounce back up towards 2858. If not, then your more bearish ~5% correction could play out sooner I suppose.

    ES daily (last stick is the current action Thursday night/ Fryday Morning)....brown line is 20-day SMA
    upload_2018-2-1_22-40-58.png
     
    #15 Onepoint272, Feb 1, 2018
    Last edited: Feb 2, 2018
    T0rm3nted and Jrich like this.
  16. Onepoint272

    Onepoint272 Well-Known Member

    Joined:
    Apr 26, 2016
    Messages:
    982
    Likes Received:
    721
    I like your figure count on the S&P cash, it agrees with mine on the futures. I used a $15 box and should probably go to a $20 box now, but nevertheless getting about the same as you. My base count average is $3480. It does seem like we need a little more down and then sideways for awhile.

    upload_2018-2-1_22-55-3.png
     
    #16 Onepoint272, Feb 1, 2018
    Last edited: Feb 2, 2018
    T0rm3nted and Jrich like this.
  17. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    I noticed Fraser in his blog adds his horizontal count to the LPS and also adds it to the lowest low of the range, to get a "target range".. instead of a finite target..... leaves a margin of error I think

    spx pf feb 2.png
     
    OldFart, T0rm3nted and Onepoint272 like this.
  18. Onepoint272

    Onepoint272 Well-Known Member

    Joined:
    Apr 26, 2016
    Messages:
    982
    Likes Received:
    721
    Ahhhh, so he uses the same count (taken at the LPS) but adds it to the low of the range? Yeah, I like that technique.

    EDIT: So that would make my ES low count = 3570 instead of 3210. Yes, very clean, I like it.
     
    Jrich likes this.
  19. Jrich

    Jrich Well-Known Member

    Joined:
    Jan 8, 2017
    Messages:
    715
    Likes Received:
    388
    Been a while since ive checked in here, and a lot has happened!!... Mainly with the market itself, but with my portfolio also

    For starters, with a little help from yall here, ive set up my own spreadsheet to track the portfolio and display my allocation on a pie chart... Also ive been pretty active rotating out of the previously hot sectors, namely tech, financials and discretionary.. and setting myself up to follow the leaders out of this volatile market if/when the rally continues... or, in a position to take advantage of weakness if it doesn't

    I'm still heavily weighted in XAR, which is the only sector currently printing new highs:cool:.. aside from that, I'm pretty much equally weighted across the board, except for utilities, which on a 3 month comparative chart are currently leading the market (purple)... the plus side to owning utilities in a range bound market is that they pay you to wait;)

    couple other things stand out... real estate (dark green) and telecom (dark red), which have been lagers for quite some time now, are showing strength relative to other sectors.. just an observation, those and utilities are the sectors least affected by global trade

    not shown on the pie chart is my cash balance... I'm sittin on about 44% cash at the moment, the other 66% being represented on the chart (not including a high income bond mutual fund I'm holding on the side)....... so, I'm ready for anything now.... bull market?... bring it on!... bear market?... plenty of dry powder!

    401k apr 19.png sectors apr 19.png
     
    #19 Jrich, Apr 19, 2018
    Last edited: Apr 19, 2018
    T0rm3nted and Three Eyes like this.

Share This Page