what is sector rotation and how can an investor identify this phenomenon to make profits in the
stock market when one area of the stock market goes on a big climb investors naturally become
reluctant to buy at higher prices they take profits and reinvest the capital in another
promising field sector rotation can get sparked by new economic conditions new innovations or
inventions new developments in global politics or new moves in other financial markets it takes
effort and discipline to spot profitable opportunities that arise out of rotations and you
need the courage to buy those stocks that develop from those shifts a large index like the s p 500
is not going to telegraph you signs of rotation here are several ways to spot sector rotation
using idd tools first scan the ibd industry group rankings on ibd data tables at investors.com
compare the current ranking with the rankings from three and six weeks ago to detect shifts
market smith also displays rankings going back to the previous week as well as three and six months
earlier you can also rank the 197 industry groups list by year-to-date change investors should focus
on stocks and the top quartile of ibd's groups to find winning stocks but a big jump in group
rank say from 120 to 80 can also help uncover a group's blossoming strength you can also look for
big one day percentage moves by laggard industry groups it could be the start of a major rebound
another way to spot sector rotation is to study the ibd stock research tables they don't list
stocks alphabetically instead stocks get ordered based on their sector's performance check the list
regularly to spot key changes in sector rankings you can also view the daily and weekly action of
the s p and other sector exchange traded funds for example the s p 500 financial sector etf
ticker xlf made an enormous gain in november 2020 that sparked a terrific advance it jumped
8.3 percent the week of november 13th and the heaviest weekly turnover in 5 months at the time
jpmorgan chase broke out past aggressive entries it also cleared a big cup with handle at 1.2360
when a number of stocks from the same industry group are seeing breakouts and extended gains
this is yet another strong sign of sector rotation also be sure to scour ibd stock market today
ibd stock of the day and ibd50 stocks to watch stories to find out new breakouts pay attention
to their sector or industry group check ibd's new highs list and ibd data tables to see which
industries are suddenly showcasing more stocks making 52 week or all-time highs once you've
used the tools to spot sector rotation there are several ways you can refine your search to
find new sector leadership watch what stocks are falling hard and what's rallying in heavy volume
ibd stocks on the move helps you identify where the money is flowing monitor how small caps and
mid cap stocks perform versus large caps to spot changes among asset types iwm the ishares russell
2000 etf rallied more than 10 percent over two weeks in late september and early october 2020.
it was a remarkable gain given that the s p 500 gained just 5.5 percent over that same time frame
the s p 500 mid cap 400 tracked by the mdy etf shot ahead almost 10 percent those gains marked
beginning of strong advances for small caps and mid caps use the ibd stock checkup tool to spot
the top dogs in an industry group gaining steam and read broadly to learn about new trends you can
stay in tune by reading the industry snapshot and ibd industry themes columns published every week
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