Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022
Quantum AI Tech Stocks Portfolio Current State - 4th Jan 2022
The Alibaba Stock Market - 4th Jan 2022
Will Gold & Silver Be Investment Outcasts in 2022 Again? - 4th Jan 2022
Stock Market Happy 2022 Entry - 4th Jan 2022
Complete paradigm shift will make Gold the generational trade - 4th Jan 2022
Corsair MP600 NVME2 1tb Drive Sudden DEATH Failures - Back Up NOW! - 4th Jan 2022
AI Tech Stocks Portfolio Updated Buying Levels and Zones Part 2 of 2 - 3rd Jan 2022
Stock Market Sentiment Speaks: 2022 Can Be Your Best Year Ever - 3rd Jan 2022
2020-22 - Soaring costs of the West's Pandemic failure - 3rd Jan 2022
AUTODESK (ADSK) - CAD - Metaverse Stock Analysis Investing for 2022 and Beyond - 2nd Jan 2022
Stock Market Sector Themes In Play For 2022 - 2nd Jan 2022
Excuse Me Mr Gold. What Year Is It? - 2nd Jan 2022
Stock Market Early 2022 Should Continue Melt-Up Trend In January / February - 2nd Jan 2022
UK Energy Crisis WARNING 2022 - How to Avoid Huge Increase in Gas and Electric Fuel Bills Right Now! - 1st Jan 2022
Why You Need A PR Expert For Your Financial Startup - 1st Jan 2022
TENCENT- Chinese High Risk GAMING Metaverse Stock Analysus for Investing 2022 and Beyond - 31st Dec 21
Gold Price Forecast 2022 - The Golden Year - 31st Dec 21
Will 2022 Be Better for Gold Than 2021? - 31st Dec 21
Gold Stocks – Wishing And Hoping (And Losing) - 31st Dec 21
Sheffield Christmas Market 2021 SANTAS GROTTO at Peace Gardens, City Centre Sights and Sounds - 31st Dec 21
Nvidia Leaves planet Earth - AI Tech Stocks Analysis - 30th Dec 21
Google (Alphabet) AI Tech Stocks Analysis - 30th Dec 21
Stock Market Santa Rally Challenge - 30th Dec 21
Sheffield Christmas Market Stalls, Sights and Sounds 2021 - 30th Dec 21
Investment Roadmap for 2022 - 30th Dec 21
2022 – The Year of (Gold) Inflation? - 30th Dec 21
Overvalued Stocks and Housing Perfect Storm for Gold - 30th Dec 21
My Most surprising Crypto call to date - 30th Dec 21
What is a Rehab Clinic and How It Is Beneficial for People? - 30th Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Sector Investing, Use Fundamental or Technical Analysis?

Stock-Markets / Sector Analysis Sep 03, 2009 - 01:42 AM GMT

By: Hans_Wagner


Best Financial Markets Analysis ArticleSector rotation investing is a successful strategy that takes advantage of the stages of the business cycle to identify industry groups that are more likely to outperform the market in each stage. Sam Stovall helped to highlight the value of sector rotation investing with his book titled Standard & Poor's Guide to Sector Investing 1995.

Since then investors have been debating the value of fundamental vs. technical analysis when analyzing sector rotation. Today, we will explore this issue and shed some light on what investors should consider.

Stock Market Sector Background

Sam Stovall states that different sectors are stronger at different business cycle phases. The table below describes this theoretical model showing the four phases of the business cycle.

Consumer: Expectations:
Industrial Production:
Interest Rates:
Yield Curve:

Full Recession 
Bottoming Out

Early Recovery 
Bottoming Out
Normal (Steep)

Full Recovery 
Rising Rapidly (Fed)
Flattening Out

Early Recession 
Falling Sharply


This table provides a simple view of the economy and the interaction of some of the important components used by investors to assess its performance. As investors, we need to keep in mind that economists spend their entire lives studying the economy and they miss the major shifts that take place. For example, how many accurately predicted the recent recession before it happened? While I do not have a count, I can tell you that very few made such claims before the event. So what makes investors think they can identify the major turning points of the economy any better?

This does not mean that investors should not pay attention to the performance of the economy and of important industry sectors that might offer above average returns. Rather you should recognize that there are limits to what we can know about the future of the economy and each industry. This insight might help to identify important trends that become the primary forces behind a major economic move.

The Fundamentalist Approach

Those who advocate the fundamental approach examine the economics of each sector. They are seeking to identify what will cause one sector to perform better or worse than another. Some of the factors they examine include the most important risks the sector will encounter, the growth rates of the sector, how they have done historically, and what is different this time. While this information is useful, it is very similar to what economists use, making it subject to the same errors of judgment. Yet this knowledge provides a good way to think through the reasons one industry is more likely to outperform another.

The advent of Exchange Traded Funds (ETFs) has changed the way investors can look at sector investing. ETFs are funds comprised of stocks based on an index, trade just like stock. Unfortunately, the standard metrics such as P/E ratios, book value, cash flow analysis, and my favorite free cash flow yield, etc, are unable to offer much help when analyzing sector based ETFs. Perhaps some day an investment research group will derive the necessary data to give investors the information to perform customary fundamental analysis. Until then investors who want to use fundamental analysis to evaluate sectors face the same problems as economists, since financial statements that cover the entire sector are not available, like they are for stocks.

Technical Approach

Technical analysis tries to identify what is the driving investor psychology as it is reflected in the share price. Using chart patterns, support and resistance, as well as a growing set of indicators, technicians look at price and volume to discover where the share price is most likely to go over a specific period of time.

Fortunately, technical analysis does not care if the tools are for a specific stock or for the entire market. The tools work well for each end of the spectrum as well as anything in between. As a result, technicians are able to offer their analysis of any sector using ETFs just like any stock or market index. This gives technical analysts an important advantage over those that only follow fundamental analysis when evaluating industry sectors.

The Bottom Line

The question whether investors should use fundamental or technical analysis when considering sector rotation strategies should focus on which approach provides the best results. Unfortunately, I have not been able to find any study that provides tangible proof either way. As a result, we are left to what has worked based on our own experience.

I have found that a blend of fundamental and technical analysis works the best. Fundamental analysis provides the strategic framework to decide where the best opportunities might lie. Whereas, technical analysis provides investors a logical basis for entry and exit points.

While not definitive, a blend of the strengths of each approach offer investors a rational way to assess the strength and weakness of each industry sector as well as where are the best entry, stop and exits.

By Hans Wagner

My Name is Hans Wagner and as a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market at

Copyright © 2009 Hans Wagner

Hans Wagner Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in