Sometimes a stock doesn’t have to do very well on its own if it can outperform relative to another. In a choppy market environment like this, Pairs trades present some incredible opportunities. Today we are going to take a look at a few Sectors relative to one another. Specifically, the sectors mentioned by Louise Yamada on Yahoo Breakout this week. She pointed to the fact that she doesn’t like the weakness in Financials but likes the strength in Tech, Utilities, and Staples.
The following three charts show the relative performance of the 3 stronger sectors vs Financials:
I think it’s pretty clear that the patterns here are similar. They each appear to be in powerful bull markets that recently entered into a corrective phase. This is confirmed with price as well as the Relative Strength Index at the bottom of each chart. I would be looking for breakouts above these declining channels for entry points into each of these pairs trades. You can also pick some of your favorite names to own in each sector and then go ahead and short your least favorite bank as the denominator in the ratio. Don’t be afraid to be creative.
Tags: $XLF $XLP $XLU $XLK