Sector rotation

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Sector rotation is a term normally applied to stock market trading patterns. In this context, a sector is understood to mean a group of stocks representing companies in similar lines of business.

For example, an investor or trader may describe the current market movements as favoring basic material stocks over semiconductor stocks by calling the environment a sector rotation from semiconductors to basic materials.

[edit] Technical sector rotation

Technicians believe that "all information is contained in price". Rather than make complicated macroeconomic forecasts, which are never right anyway, they look for price action to lead them to which areas are best to invest in. Technicians say "the trend is your friend". Technicians also say "unless it's about to end". As well as this, they say "the worst house in a good neighborhood is better than the best house in a bad neighborhood" (meaning, picking specific stocks is not so important so long as your view on sectors is accurate).

[edit] Retarded sector rotation

Some proponents of sector rotation say that, if it's done in a stupid enough manner, sector rotation may actually start to work backward. That is, slow investors (often called "dumb money" by people in New York) will have fairly accurate timing in getting into sectors just as they're near their top. They become quite successful at destroying their own money, more than can be explained by random chance, compared with someone who just tracks a market index. According to these proponents, this is one thing that explains why typical investors do so much worse than the market average, which is not so easily explained by fees or expenses.