Sector rotation

From Wikipedia, the free encyclopedia

Sector rotation is a term normally applied to stock market trading patterns. In this context, a sector is understood to mean a group of stocks representing companies in similar lines of business.

For example, an investor or trader may describe the current market movements as favoring basic material stocks over semiconductor stocks by calling the environment a sector rotation from semiconductors to basic materials.

Sector Rotation Models exist primarily to help investors identify and participate in new trending sectors of the stock market. A sector rotation investment strategy is not a passive investment strategy like indexing, and requires periodic review and adjustment of sector holdings. Tactical asset allocation and sector rotation strategies require patience and discipline, but have the potential to outperform passive indexing investment strategies.

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“If you are in the right sector at the right time, you can make a lot of money very fast” –Peter Lynch

Sector Rotation Theory can help you invest (or trade) in the key sectors that are outperforming the market right now. There are always stocks in certain sectors that are “on fire” or “out of favor”.

Your goal is to understand broad patterns that reoccur and try to find connections between ideas and occurrences in the market and the broad economy. The stock market can at times lead the general economy and provide high-probability trade ideas for longer term positions.

If you can come any closer to mastering the skills of recognizing sector rotation in play, you will be profitable in many months to come. Open your eyes wide. Take the advice from Jim Cramer: “If you want to make money,” Cramer said, “you need to take a chance. Sometimes you will be wrong, but if you never try…you'll never be right.”
Cheers!