3 Strong Sectors for 2013
Instead of worrying about market uncertainties leading up to the New Year, I want you to focus on what you do know.
Ask yourself these questions: What are the strong trends leading the market into 2013? And how can you profit from them?
Remember that during times of uncertainty, things usually aren’t as bad as they seem. I already told you that the fiscal cliff worries will eventually pass — and that the housing recovery will help instill some confidence in the broad market. Sprinkle in a few reinvigorated consumers and you might see the makings of a new market rally…
Today, I’m going to show you how to prepare for trading in 2013 with a top-down approach.
To do this, we’ll take a look at key over- and underperforming sectors.
Let’s start with the laggards first:
Here’s a chart of the S&P 500’s performance so far this year. I’ve also overlaid the performance of the utilities sector, represented by the Utilities Select Sector SPDR (NYSE:XLU).
(One quick note: I’ll be using several “SPDRs” today to represent various sectors. They’re great ETFs you can keep an eye on to quickly gauge performance in various pockets throughout the broad market.)
As you can see, utilities are lagging the broad market by a large margin. Other notable lagging sectors are energy (up less than 5% year to date) and materials (up about 9%, but still considerably lagging the S&P 500).
Simply put, these are not places where you should be looking to put your trading money to work.
Now let’s look at the sectors that are outperforming the broad market:
And despite cries that the end of the world is quickly approaching, stocks from both the consumer discretionary and consumer staples sectors continue to crush the broad market.
No one’s talking about it. The media are too wrapped up in taxes and a never-ending fiscal cliff watch to get the memo. But the fact remains: Consumer stocks are doubling up the S&P.
Here are the raw numbers:
The consumer discretionary sector — measured by the Consumer Discretionary SPDR ETF (NYSE:XLY) — is up a cool 23% year to date. Consumer staples as a group are up almost 25% since Jan. 1. The S&P 500? It’s up only about 12%.
You can see that despite a tough, choppy market, all is not lost. Barring a total market meltdown, there are always pockets of strength for traders like you to exploit. You just have to let the market tell you where to look.
If you keep an eye out for specific opportunities in these three sectors over the coming weeks, you should be able to find some great trades to start the New Year…
Greg Guenthner, CMT
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