Defense May Not be the Best Offence in this Market

The choppy price action in the market ($SPY) has left traders salivating and investors scratching their heads. What you are experiencing is a market that is shifting leadership. We are seeing last year’s sectors that were leading in 2014 are now lagging in 2015.

The sectors that lead most of 2014: Consumer Staples ($XLP), Utilities ($XLU), and Healthcare ($XLV), are moving in lock step with the S&P 500 ($SPY). These sectors are the biggest laggards, but the S&Ps are not following suit in 2015.

The main reason is that leadership is now in the hands of Energy ($XLE), Materials ($XLB), and Consumers ($XLY). This sets up a new trading paradigm, risk on and defense off.

Look to the leaders and best of breed stocks to trade on the upside. Names like Disney ($DIS +8.68 % YTD), DOW Chemical ($DOW +5.85% YTD), and Schlumberger Limited ($SLB -1.48% YTD, but is 10% off its lows).

Take advantage of the cyclical shift of sector leadership. Remove the sluggish stocks in the laggard sectors and add the leading stocks in the dominant sectors.

Have a good trading day!