Investors and Traders are anxious as the markets are testing their patience with no apparent signs of movement. Economists and Hedge fund managers claim a recession is inevitable given the high inflation. This is the first time most of us are experiencing the market turmoil where stocks, bonds, and cryptos are getting crushed. Sky-high inflation along with supply constraints are driving commodity prices high. With all that being said, Where to invest your money? Where is the smart money moving?
Here are some data-driven ways to follow smart money and hedge your portfolio without using the complexity of options and derivatives, says an article published in DataDrivenInvestor.
Building an analytical tool
There is always a bull market like a Sun and sunshine somewhere.
We built an analytical tool at WIBE to find that bull to ride along with it.
Did we find it?
Yes.
How?
For discussion, let’s assume that we do not understand inflation, geopolitical crisis, FED interest rates, etc. All we have is some analytical tool that runs on an algorithm (based on mathematics and statistics along with technical indicators). The tool tells us that S&P 500 has been entirely out of sync with these sectors for over two to three months. We observed the stocks in these sectors, and they were flying as high as rockets.
Without much further ado, let’s reveal the bulls!
The bulls in the current markets are:
Energy,
Utilities,
Materials,
Consumer Staples, &
Healthcare.
Specifically, the Energy sector has demonstrated an extreme bullishness with a WIBE score of 36, followed by the utility sector.
From the above image, as you can see, the S&P 500 (the index) is ranked seventh (WIBE rank). For simplicity of presentation, we have removed the technical indicators and presented some critical data.
WIBE Score
The WIBE score for the energy sector is far higher than other sectors indicating extremely bullish momentum. Next comes the utility sector, healthcare, and the Materials sector, bullish. I prefer to invest in the sectors rather than individual stocks, and as of today, I am vested in:
XLE — Energy Sector &
XLU — Utility Sector
All three sectors have a positive WIBE score and have outperformed the S&P 500. The below image shows the sector’s outperformance compared with the S&P 500.
The energy sector has delivered a 50% year-to-date return compared to a negative 16% by S&P 500.
Technical Analysis
XLE — Energy Sector ETF
Based on the charts, if the bullish momentum continues, the XLE ETF has a 13% upside to reach its all-time high. The MACD on daily and monthly charts indicates bullish momentum. Investors note that this bullish momentum may be short-lived due to the divergence between the price and RSI.
XLU- Utility Sector ETF
The Utility sector ETF indicates bullish momentum where both MACD and stochastic confirm it. The ETF has an upside of at least 3% to its all-time high price, and based on the set-up, we can expect a breakout.
The relative strength of both XLE and XLU is bullish compared to the S&P 500.
The next question — When to sell these ETFs?
Most blogs recommend buying or time the entry and never care to let you know when to exit. It is essential to have straightforward entry and exit strategies with momentum or any trading strategy.
Exit Strategy: When tech stocks or S&P 500 ranking as per WIBE Ranks comes closer to XLU / XLE (or) XLU/XLE momentum fades, we will book profits and exit the position → re-invest the proceeds into S&P 500.
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Source: DataDrivenInvestor
