Sectoral Rotation

One of the sites which I frequent daily State Of The Market had a nice post on Sectoral Rotation with an Indian Perspective.Since we talked about Relative Strength yesterday,I thought it would be right if we delve into the concept of Sectoral Rotation today.

The brief, what I present here, is one I had read in a book by Martin.J.Pring.

The stock market cycle experiences a distinct pattern of industry group rotation because of chronological nature of the business cycle.Interest sensitive groups have a tendency to lead at peaks and troughs.Where as corporations with profits that are enhanced by an increase in capital spending or commodity price inflation generally lag in overall market.

There are instances when a sudden change in the fundamentals of an industry cause a group to be uncharacteristically strong or weak during a specific cycle.It is therefore better to monitor a spectrum of groups rather a specific group.

An understanding of group rotation cycle is helpful both in assessing the maturity of a primary trend and for the purpose of stock selection.