How to survive and thrive under the great sector rotation? [Video]

Last week, the Dow and the Russell 2000 made a come back and outperform the Nasdaq and the S&P 500. Could that signal another round of sector rotation back from tech to value within a week or two?

The sector rotation has started since Sep 2020 from growth to value and only become obvious in Feb 2021 where there are a lot of the selloff in the tech & growth stocks. Around 3 weeks ago, we have witnessed rotation back from value to growth and lots of value stocks were sold off hard while the growth stocks exploded to the upside. Watch the video below where I covered 3 tech stocks that are flashing bullish signals together with the comparison of Tesla vs. the China electric vehicles — NIO, XPEV, LI:

 

The ever changing sector rotation has certainly stir up the market environment and dynamics and traders generally find it challenging.

Changing of market environment

The challenging part is that the up-trend is generally short-lived and there are a lot of trading ranges formed even after breaking out from a nice accumulation structure. Breakout trading strategy generally encounters a lot of failure.

If you are looking for buy on simple pullback in the Phase E mark up phase (e.g. up trend), you are likely trapped within a range too.

If you expect to ride the whole big chunk of uptrend instead of 1 simple up swing, you might encounter breakeven trade or even hit a stop loss because there is no smooth and sustainable uptrend while the sector rotation is on-going for many stocks.

Adjustment of trading tactic

In this case, it is wise for us as a trader to adjust the trading tactic. Instead of preparing to ride multiple up waves, we might want to consider to ride only a swing with a trailing stop.

Instead of trading momentum breakout, a spring trade (buy on support, sell on resistance or the false breakout) might offer better winning rate.

Instead of trading only small and mid cap stocks, we might want to consider the big cap or mega-cap stocks depending on their respective relative strength and vice versa.

We shouldn’t limit ourselves too much and need to be flexible with the trading tactics if we would like to survive and thrive in this challenging market environment. Else, stop trading could also be another smart option since we are not forced to trade and holding cash is just fine (unlike some funds are forced to maintain full positions).