Don't Run for the Hills Just Yet!

Personally, I’m not a big fan of heights! I could sweat buckets just imagining myself at the top of a 20-foot ladder. It’s only natural — I once broke my wrist falling off one.

Even at a recent Dent Research team retreat when we climbed, crawled, and dangled from a 30-foot high ropes course, my nervous hands could barely grip the rope they were so sweaty — even though I had a harnrness!

Today, the markets are resting atop a 20-foot ladder… and investors are smelling of fear.

As readers of my premium newsletter Cycle 9 Alert know, the market’s sectors rotate in and out of favor… priming them for periods of outperformance and underperformance. It’s the basis for the newsletter’s trading system.

Our Leaders & Laggards Board provides a simple snapshot of sector momentum. But it’s important to remember that it’s just a snapshot of one moment in time: today.

Additional information can be gleaned by comparing today’s Leaders & Laggards Board with the one from a month ago… or two months ago. This allows us to see which sectors are improving and which are weakening.

From this, some clear trends emerge…

The “defensive” sectors have gained much momentum in the past month. Specifically, the Utilities, Health Care and Consumer Staples sectors had negative scores last month… but now have much stronger ones.

But while investors cautiously enter the more defensive sectors, the more aggressive, “risk-on” sectors are lacking in love. For example, the Energy, Technology and Consumer Discretionary sectors have negative scores, after scoring positively last month.

All told, both sides of the “risk-on/risk-off” coin suggest that investors began adopting a defensive stance throughout May.

As I see it, some of that fear is warranted. I’ve highlighted before that June is historically the worst month of the year for stocks. And buying two defensive sectors – Consumer Staples and Health Care – during the summer slowdown has proven to be a valuable “defensive” strategy.

That said, I don’t think investors’ shift toward defensive sectors is all that ominous. The dominant, long-term trend in the stock market is still bullish… and buying defensive sectors is not the same thing as selling and running for the hills.

I’ve already told Cycle 9 Alert subscribers we are NOT running for the hills this summer. Instead, I’m identifying high-probability opportunities in specific market sectors while making sure we have “correction protection.”

You can reap the summers’ profits by joining this group of readers.

Adam O'Dell