Admit it, we investors are sometimes our own worst enemies! We have a tendency to overcomplicate things, to overthink it to death…
If this sounds like you, read on…
It’s not hard to understand how it happens – with so many choices, the constant barrage of headlines, and so many things vying for our attention on a minute by minute basis, it’s easy to lose focus or become overwhelmed.
Yet, often the smartest – and the simplest – thing to do is just keep investing in today’s winners. That’s the secret to success. In other words, you don’t have to find tomorrow’s winners when today’s leaders are still profitable.
A pretty smart guy once said that “objects in motion tend to stay in motion”
For technicians like ourselves, this means identifying stocks and sectors that are already in an uptrend, because trends tend to persist and leaders typically continue to lead.
So forget about headlines, blue wave or fiscal stimulus. Concentrate your energies on trends that are working today and ride them for all they’re worth!
Your roadmap to market beating returns is directly linked to your ability to adapt your market stance and invest in what’s working now, not what you think might work tomorrow.
So although the final votes are still being tallied in Election 2020 here in the United States, investors, or should I say, the big institutional money that we watch daily, is casting their votes for market dominance.
And after rebounding off the March lows, U.S. Equities have shown remarkable resilience having reasserted themselves once again as the dominant asset class around the globe.
That means on a relative strength basis, stocks are stronger than the alternatives – Fixed Income, Gold, Currencies and Cash.
So, the question – “should we be buyers of stocks or sellers of stock” has been decided. And until those inter-market relationships change – U.S. Equities are the place to be.
Even before yesterday’s (Mondays) monster surge in stock prices, Technology, Healthcare, Communication Services, and Consumer Discretionary sectors were leaders on both a relative and absolute basis. These are the sectors that have had the most momentum – buying from institutional money.
And since the March 23, 2020 low, that momentum has resulted in returns of 74.60% for Consumer Discretionary Stocks (XLY), 72.29% returns in the Tech sector ETF (XLK), 57.22% in the Communications sector (XLC) and 49.72% for Healthcare (XLV).
I’ve been writing about them all year, telling you these growth-oriented sectors have been among the sector leaders for most of 2020.
Throughout a year marked by unrelenting political discord out of Washington and the COVID19 pandemic, we’ve witnessed Consumer Discretionary Stocks, Healthcare, and Communication Services all joined Technology in ranking within the top five positions of our eleven sector matrix.
Even Industrials made its way back into the top five, moving up to the fifth position just this month, jostling with Basic Materials to rejoin the coveted top half.
So, as we move forward through the last two months of 2020 -into the seasonally strong six months for the market and into 2021, we’ll continue to monitor these relative strength relationships to see if these leading sectors can continue to offer market beating returns…
For now, there are no signs of these sectors losing their strength, so these are the sectors we will want to continue to focus on.
Here are a few names to watch in each of the strongest sectors:
I’ve added #6 because although RXL is ranked above IHI, it is not a fund we invest in because of its high use of leverage.
These are just some of the ETFs that are on our radar, as sectors move in and out favor, we’ll be updating you here in Adapt Weekly. So check back to stay up to date on any important developments.
Until next time, invest wisely…
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