Riding the sector rotation wave

Hey Market Pilots,

Last week I wrote about sector rotation; what it is, how to look for it, and where is it going now? The real key to taking advantage of sector rotation is being able to identify it early and then find the best names in that sector.

With word about a possible Covid vaccine coming out and news about the economy opening back up, as seen by Las Vegas opening their doors, the new hot stocks were in travel, gaming, and retail. It took only a few days for me to recognize this and confirm this was a solid area to look into.

Once I saw what was happening with the charts in these sectors, I was able to figure out the patterns that were working by studying some of the early movers. After I was able to determine the path other stocks were likely to take, I began buying into names that had the makings of those same patterns and let the magic happen. I’ll cover in detail those particular setups later in the week, but for now, here are daily examples of how the sector rotation kicked off.

In the screenshot above of ALK, you can see that price traded flat for a very long time as the economy was shut down and some of these industries basically had to go into hibernation. Their quiet price action allowed them to turn resistance into support by simply waiting and letting time pass. 

WYNN did the same thing of turning resistance into support with just the passing of time but in a slightly different way. WYNN was able to cross the Daily 50 SMA a few weeks back, then tested the MA, and still needed more time before launching. But everything was there, in place, and ready for when the right news came out to boost the stock up.

ASNA (retail) was the last to follow this process, which gave me plenty of time to get into the right position for a killer move. Note the progression between the various tickers I just reviewed and see how I was able to take the nuances from each and apply them to the other, allowing me to capitalize on the similarities. 

Pattern recognition is important when trying to make money in the stock market. Building an inventory of those patterns is helpful, so you can review them and see what patterns tend to work well and in what order of events. Sector rotation is a great way to ride the tide that lifts all boats, but you have to find where that tide is coming in and be ready for the swell.

Over and Out,

Your Profit Pilot


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