Strength Begets Strength

Earlier this month I shared with you a chart from Guggenheim Partners. It showed the market’s historical tendencies during the last 17 government shutdowns.

That is, markets endured a flat period during the shutdown (-0.2%) and then enjoyed an average surge of 1.7% over the 10 days following the shutdown’s end.

We aren’t 10 days out yet, but the S&P 500 is already up 1.3% from Wednesday’s close.

So today I want to share a chart that shows the relative performance of the market sectors since the shutdown began.

See larger image

First, the market clearly didn’t languish during this shutdown.

With the S&P 500 up more than 2.2% while the lights were out, it seems investors didn’t take the shutdown seriously. Anticipating a resolution, resolved bullish investors continued to buy into the uptrend that even a dysfunctional Congress couldn’t knock of course.

Beyond the broad market, there are clearly differences in how sectors performed during the shutdown. Utility stocks, notoriously sensitive to changes in interest rates, were at the bottom of the pack as rates crept higher over the last three weeks.

Meanwhile, the health care sector made the second strongest move – up 2.95%.

And when you look at the year-to-date performance of each sector, you’ll see the recent outperformance of health care stocks is a continuation of the sector’s momentum. The sector (XLV) is up more than 31% in 2013, versus S&P 500’s 22%.

“Strength begets strength” is the basic premise of relative strength and bullish trend-following strategies. It’s also a fundamental principle of the strategy I developed for my trading service, Cycle 9 Alert… and part of what I’ll be speaking about next month at our Irrational Economics Summit in La Jolla.

Stay tuned for more on this topic…

And if you haven’t done so yet, reserve your seat at our conference now. I think you’re going to want to hear what we all have to say.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.