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Are Investors Out of the Woods After the Recent Pullback?

John Jagerson and Wade Hansen

On March 9, Wall Street marked the nine-year anniversary of the long-term bullish uptrend we are currently in and, let’s face it, there has been a lot to celebrate. While there have been a few volatile periods during this nine-year run, most of this bullish uptrend has been characterized by steady spans of uninterrupted bullish moves higher.

This general sense of bullishness has been great for investors, as it seems virtually every stock out there has been moving higher, but it has also created a cohort of lazy investors who have been able to sit back and take advantage of the phenomenon that “a rising tide floats all boats” without doing a lot of analytical work on their positions. That all changed last month.

February’s pullback seems to have broken the bullish spell that had enveloped Wall Street, and now investors have to start doing their homework again because not all boats are floating right now. Some are, but others are not.

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You can see the discrepancy in performance by looking at a comparison chart of the SPDR Sector ETFs since the beginning of 2018. As you can see in Fig. 1, the 10 S&P 500 sectors tracked by SPDR have produced the following results:

  • Technology Select Sector SPDR Fund (NYSEARCA:XLK): 7.7%
  • Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY): 5.4%
  • Financial Select Sector SPDR Fund (NYSEARCA:XLF): 4%
  • Health Care Select Sector SPDR Fund (NYSEARCA:XLV): 2.8%
  • Industrial Select Sector SPDR Fund (NYSEARCA:XLI): 0.2%
  • Materials Select Sector SPDR Fund (NYSEARCA:XLB): -1.6%
  • Utilities Select Sector SPDR Fund (NYSEARCA:XLU): -4%
  • Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP): -4.3%
  • Real Estate Select Sector SPDR Fund (NYSEARCA:XLRE): -4.7%
  • Energy Select Sector SPDR Fund (NYSEARCA:XLE): -7.7%

Fig. 1 — SPDR Sector ETFs Comparison Chart

Seeing technology stocks gain over 7% while energy stocks were losing about the same indicates a rather large discrepancy in sector performance. But if you are willing to spend the time to research and see which sectors are doing well compared to which sectors are doing poorly, you can take advantage of these discrepancies.

The Bottom Line

So are investors out of the woods? Well, lazy investors are most definitely not out of the woods. Gone are the days when you can buy just any old stock and have confidence that it will rise. There will be stocks that will continue to go up as we head into the second quarter of 2018, but investors are going to have to do their homework and look for them.

You can learn more about identifying price patterns and using them to project how far you think a stock is going to move in our Advanced Technical Analysis Program.

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.

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