247Bull Trading Portfolio: Technology, materials & industrials give buy signals on breakouts & sector rotation

Portfolio strategy

The 247Bull Trading Portfolio employs a trend following strategy which seeks to take advantage of companies and markets that are either showing signs of strength and market leadership, or those that have begun to establish powerful trends.

Profiting from sector rotation

Until last month the technology, materials and industrials sectors within the S&P 500 (together with energy and industrials) had been trending down while other sectors such as health care, consumer staples and utilities had been trending up. Now however, the trend appears to be reversing and the sectors that had lagged behind are breaking out to new highs.

The chart below shows the 10 S&P sector ETFs and it’s clear to see that the leadership is changing as money moves out of conservative sectors and into those that traditionally carry more risk and are more economically sensitive.

The green and blue arrows are the technology and materials sectors respectively, while the pink and black arrows are the industrial and energy sectors.

A 90 day chart of the 10 S&P Sector ETFs (Click on the chart for a larger version)

A 90 day chart of the 10 S&P Sector ETFs (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

The chart below shows the Technology Select Sector SPDR Fund (XLK) which holds companies such as Apple, Microsoft and Google.

Having made a bottom in mid-November the fund steadily advanced within an upward sloping price channel. At the beginning of May however, the fund opened sharply higher and it has since breached its September 2011 high of $31.39.

A 1 year daily chart of the Technology Select Sector SPDR Fund (XLK) (Click on the chart for a larger version)

A 1 year daily chart of the Technology Select Sector SPDR Fund (XLK) (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

The breakout to the highest level since the technology bubble burst, coupled with the rotation we are seeing into the sector makes the fund attractive.

The fund was added to the 247Bull Trading Portfolio at $31.52.

The fund is likely to come back to retest the $31.30 level, however if the price moves lower it could also look for support at around $30.90 which corresponds to the upper trend channel. With this in mind a stop loss has been set at $30.80.

The Materials Select Sector SPDR Fund (XLB) has also recently broken out to new highs.

A 1 year daily chart of the Materials Select Sector SPDR Fund (XLB) (Click on the chart for a larger version)

A 1 year daily chart of the Materials Select Sector SPDR Fund (XLB) (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Since the beginning of 2013 the fund, which holds companies such as Monsanto, Du Pont and Freeport-Mcmoran, was range bound between about $37.15 and $39.80. On 7 May however, it managed to clear this area of congestion and break to the highest level since May 2008.

The fund was added to the 247Bull Trading Portfolio at $40.39, however since a retest of former resistance is likely, a stop loss has been placed at $39.60.

The Industrials Select Sector SPDR Fund (XLI) is another sector fund that has recently broken out to new highs.

A 1 year daily chart of the Industrials Select Sector SPDR Fund (XLI) (Click on the chart for a larger version)

A 1 year daily chart of the Industrials Select Sector SPDR Fund (XLI) (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Earlier this month the fund, which holds companies such as General Electric, Boeing and United Parcel Service, managed to break above overhead resistance at $42.10 taking it to a new all-time high. The fund was added to the 247Bull Trading Portfolio at $40.39, and a stop loss has been placed at $41.45.

The other sector within the S&P 500 which is benefitting from this sector rotation is energy and this remains on our radar and as possible buy in the future.

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