Broad market indices are useful shorthand but not a fantastic way to invest, no matter what your financial adviser tells you. It's not widely understood that both the S&P500 and the Dow Jones Industrial Average are baskets of stocks chosen by committees. Think of them as extreme funds run by a group of people with relatively arbitrary guidelines and no performance incentives.
One way to at least partially get around this problem is to focus on sectors within the market. This technique not only serves as a way for laypeople to get away from the parts of the S&P500 they'd rather not own, but it also provides a starting point for winnowing down a portfolio to include specific names in an industry.
To help us find sectors that can outperform, or at least hold their own in an increasingly volatile environment Breakout welcomed the National Treasure and chartist extraordinaire Louise Yamada of lyadvisors.com. Louise gave us her favorite and least-liked groups along with a couple stock ideas as a bonus.
Yamada's Top Sector: Technology (QQQ)
Yup, just when the world forgot almost entirely about tech stocks they're back again. Noting tech's powerful relative strength, Louise says the sector has been in the penalty box long enough after burning investors so badly over the last 10 years. It's been a decade since the once beloved Cisco (CSCO), Microsoft (MSFT), and Intel (INTC) have done anything other than kill "long-term holders" and serve as a punch line to every joke I make about dead money.
Louise says I'm going to need another stock to replace at least one of the former giants. Noting Intel is breaking out, she says it's a pick, "if you want a stock that's really lifting off a floor." A long floor indeed.
Yamada's Bottom Sector: Financials (XLF)
As Louise sees it, the financial sector is analogous to tech three or four years ago. "In 2007 financials broke down from a ten-year top," she says. "A major technical observation."
"The bigger the drop, the longer the recovery," she says. Investors' pain from the financial sector's 80% drop is still new. "It's too soon," says Louise, playing the part of your best friend trying to snap you out of it, the healing hasn't even begun. "You can get generous bounces; it's just too early for a sustained rally."
Away from equities, Louise says silver needs more time, but gold could be a buy should it get down to it's support line near $1,600 an ounce.
Tune into the video to get some more insight, not to mention enjoy the charm of the always wonderful Ms. Yamada.