After a scorching hot run, the S&P 500 is starting to look just a little bit soggy. Some sectors are stronger than others. Where should you put your money now?
John Roque, managing director of WJB Capital Group, makes the case for sector rotation within a portfolio. Roque's regrettably irrefutable point is that a blanket long bet on the market has been a loser during stocks' lost decade -- and the horizon isn't looking much better so far this year.
"It doesn't matter if you're Warren Buffett or Peter Lynch or Jeff Macke, when 52-week new highs do not expand, it's almost impossible to make money on the long side consistently," he says.
So where does Roque see greener pastures? The answer may surprise you. "Right here is a good place to put money into consumer staples," he says. His answer raises multiple questions, first among them being how a person can buy a sector where input costs are rising daily and pricing power is a hypothetical concept with an 8% unemployment rate.
Roque, a technician, immediately responds that the charts are telling us something by turning higher regardless of the headlines and headwinds. "Input costs are not going to rise as fast as they did rise," he continues, suggesting that the headlines are missing the fact that the cost of inputs, much like the price of the S&P 500, are unlikely to double again in the near term. That means it makes sense to pick through the rubble to find the flowers poking their heads up.
Roque has a portfolio's worth of ideas for stocks starting to move higher, even as the broader market seems to be running out of steam. John suggests loading up a cart of names such as Kraft (KFT), Heinz (HNZ), Pepsi (PEP), Dr. Pepper/ Snapple (DPS), Kellog (K) and General Mills (GIS). All of the stocks have seemingly shaken off a protracted pause period and are creeping higher of good bases, says Roque.
For those of you unfamiliar with charts, Roque's art form isn't about picking exact bottoms, thus avoiding the dreaded "value trap" of being long a group of stocks which "should" rally but aren't. Roque and other technicians listen, indeed defer, to what the tape is telling them as opposed to what economists think. It's an important distinction in a choppy tape and more seemingly horrid economic news than can be discussed in one column.
Is Roque crazy like a fox or crazy like a guy living under an overpass and wearing a tinfoil helmet? Drop us a comment at Breakoutcrew@yahoo.com and let us know what you think.
- S&P 500
- sector rotation
- Peter Lynch
- Dr. Pepper/ Snapple
- Warren Buffett
- managing director
- the flowers