WASHINGTON. I think I’m going to go out this afternoon and run a few long-delayed errands. Stocks have been so utterly boring – in a negative way – this week that it’s hardly worth the time to sit here in front of my wide-screen computer pondering the numbers, charts and analyst stock touts. Nothing’s going anywhere except modestly down until we get some definitive news from… somewhere. It’s Waiting for Godot Time on Wall Street again. Yawn.
Breaking out of Godot Time: Another look at XLC
Need an antidote? A number of analysts and investment advisors have noticed the occasional bright spot. That’s true even as averages wallow in the negative zone. Tom Bowley, whose column generally appears free on the invaluable subscription service Stockcharts.com, noticed the recent strength of the new Communications Services Sector ETF (trading symbol: XLC).
“There were definitely pockets of strength, however, as communication services (XLC, +0.63%) continued their resurgence. They’re also the best performing sector over the past week.”
What a pleasant surprise. I lost money on this puppy twice last fall, but not much. Plus, who didn’tlose money on nearly any stockthey owned in that rotten final quarter of 2018? I’ve been wanting to get back into this ETF at a better time, and this might be it, more or less. So I started a small position this morning on temporary weakness in this issue. No Godot Time for this ETF. It tends to move.
More on the Communications Services industry sector
Redeemed from its boring and relatively useless stint as the former Telecommunications Sector (which included only more or less dying phone companies), the now revamped Communications Sector adds some big tech and entertainment hitters like Alphabet, aka Google (GOOGL), Facebook (FB) and Netflix (NFLX). It’s a good way to get involved with these and other powerful stocks, including Disney (DIS) and Comcast (CMCSA), without the total risk of owning these very expensive (in dollar terms) shares.
Bowley, in fact, has some interesting insights on industry groups in general, as represented by popular ETFs. He appends a relative rotation graph (RRG) charts to illustrate his next observation.
Bowley on Sectors
“I like to evaluate the strength of market rallies by examining where the money goes. In a sustainable market rally, I want to see investors/traders in a “risk on” mood. Aggressive sectors include technology (XLK), consumer discretionary (XLY), communication services (XLC), industrials (XLI) and financials (XLF). Here at StockCharts.com, there are various ways to analyze sector performance, but one of the best ways is to simply plot these sectors on an RRG chart vs. the benchmark S&P 500 and visualize how money is rotating. Currently, it appears to be rotating rather bullishly:”
Evading Godot Time with RRG charts
I’ve been seeing these RRG charts more frequently these days. They often prove interesting and quite helpful in determining industry sector strength in or around a given quarter. It also follows that these RRG snapshots are also quite useful in timing buys and sells in positive sectors. You’ll find these by picking sectors that are currently spending time in the chart’s upper two quadrants.
RRG charts function, in a way, like a simple Wheel of Fortune. Whether you’re looking at RRG charts of stocks or industry sectors (and associated ETFs), whatever appears on the chart is, like all investments, constantly involved in a cycle of endless rotation in a clockwise direction. Plus, watching these charts develop is a great way to escape the trap of Godot Time.
Stocks and sectors invariably go up and down over time, just like companies and people do. It stands to reason, then, that when given stocks or sectors have clearly entered the “UP” part of their ongoing rotation, that’s the time to buy them.
But when their nearing or entering the lower two quadrants, they’re heading for the “DOWN” part of their rotation, and should promptly get the boot from the portfolio. They’ll rarely do you any good until they’re headed for or already in those “UP” quadrants again.
Communications services redux: One more ETF
Once again, here, among several sectors, you’ll find that the Communications Services ETF (XLC) appears to be at the midpoint of a positive rotational move in this chart, another signal that it may be save to buy here. As always, however, we all travel at our own risk and expense. And, as I’ve already observed, I have yet to place a winning bet on XLC.
Final note. Vanguard also offers a Communications Services ETF, symbol: VOX. At the moment at least, XLC seems to have more trading depth. Thus, it also offers narrower bid-ask spreads, which is generally a good thing when entering and exiting an investment. That’s why I’ve cited it here.
Intermission: Trading diaries vs. stock recommendations
And remember, I don’t really recommend anything in these columns. They’re here as the ongoing trading diary of an active trader, in the hopes that they may be instructive to readers trying their hand at this game. Unlike a lot of financial columns, this one has boots on the ground. I have plenty of nice wins under my belt, or I wouldn’t be writing the column.
On the other hand, I also report portfolio accidents and blunders (like holding that giant Allergan [AGN] position while it tanked). Any investor who tells you constantly about his never-ending string of big, big wins is the very definition of a liar. This is a tricky game, and you don’t always win. Hopefully, reading about one investor’s adventures in small cap capitalism proves, for at least some, to be a far better alternative than Godot Time.
Worse, you can sometimes be in a situation akin to your home baseball team’s top slugger, when he gets into a nasty hitting slump. It’s horrible, the team often hits a losing streak while he’s slumping. But the slump only ends when God decides it should end. It’s the same thing with trading and investing. A cold streak ain’t over ‘til it’s over. Nor is a steady bout of Godot Time, whenever we’re stuck in Samuel Beckett’s lonely hell.
— Headline image: Godot Time. Ian McKellen and Patrick Stewart in a Broadway production of Samuel Beckett’s absurdist drama, “Waiting for Godot.” (Image via Wikipedia entry on the play, CC 2.0 license)