Sector Rotation and Trade Planning (What Sector Rotation Is and How Traders Are Using It to Plan Trades)

 Asset allocation methods are frequently used by active traders and investment managers to beat the market while avoiding negative risk. As their many assets to pick from, the number of methodologies used to determine which sectors to buy and their relative weightings is much greater. In this article, we'll take a deeper look at a specific exchange-traded fund (ETF) that employs a sector rotation strategy and attempt to predict how traders will likely move their capital in the days and weeks to come.

Sector Rotation and Trade Planning (What Sector Rotation Is and How Traders Are Using It to Plan Trades)

ETF SPDR SSGA US Sector Rotation (XLSR)

According to the chart of the SPDR SSGA US Sector Rotation ETF (XLSR) shown below, active traders who use sector rotation as the foundation of their strategy may be ready to profit from a long-term move up.

Sector Rotation and Trade Planning (What Sector Rotation Is and How Traders Are Using It to Plan Trades)

Technical analysts will most likely interpret the bullish crossing between the 50-day and 200-day moving averages (indicated by the blue circle) as a sign that the next leg of a significant rally is just getting started. Many traders would likely attempt to begin a position as close to present levels as feasible and put stop-loss orders below one of the depicted support levels, depending on risk tolerance and outlook.

1) Technology

The significance of technology in today's society has never been clearer since much of the landscape of work and pleasure has become digital in nature. Technology has been the top area of interest for most active traders in recent months, and it also has the biggest weighting in the XLSR ETF. Many traders will likely look to ETFs such as the Technology Select Sector SPDR Fund (XLK) for direction in the coming weeks.

Sector Rotation and Trade Planning (What Sector Rotation Is and How Traders Are Using It to Plan Trades)

As seen below, the price has just eclipsed the 2020 highs reached in February, and recent price activity shows that the bulls are in charge of the momentum and that prices may be prepared to rise. Stop-loss orders will be put below one of the dotted trendlines, the 50-day moving average, or the 200-day moving average, depending on risk tolerance and forecast.

2) Discretionary to the Consumer

As indicated by the chart of the Consumer Discretionary Select Sector SPDR Fund, companies that gain from the expenditure of discretionary income appear to be of particular interest to traders in today's market (XLY). Active traders should take note that the 50-day moving average has just crossed above the 200-day moving average (shown in blue), which is typically used by technical analysts to signal the start of a long-term rally.

Sector Rotation and Trade Planning (What Sector Rotation Is and How Traders Are Using It to Plan Trades)

Recent price movement around the dotted trendline and the bullish crossing implies that the bulls are in charge of the momentum. In the event of a rapid shift in market sentiment, stop-loss orders will most likely be set below the trendline, 50-day moving average or 200-day moving average.

Exploring sector rotation tactics may be a good idea for traders who are unclear about where to invest their cash. Technology and consumer discretionary may be the sectors that are leading the way, according to the chart of XLSR, which suggests that prices are poised to make a long-term rise upward.