Should You Buy Leaders or Laggards?
Some sectors were hot in 2023. Will they keep it up or should you look elsewhere?
There are two types of traders, those that like to ride momentum and those that like to find opportunity in less popular areas of the market.
Figure out which trader you are. It really doesn’t matter which.
What does matter is that after you understand what your preference is, you stick to it!
Why do I say this?
If you are someone that tends to believe that more upside is coming and you enjoy joining in after momentum has already started to pick up, then you want to focus on recent market leaders.
If you don’t do this and instead are putting your money to work elsewhere, it is likely only a matter of time before you get frustrated about missing out on returns from the latest hot stocks and abandon your trading plan.
You could have the perfect plan in place but the patience and mental discipline needed will be really difficult to maintain if you’re trading against who you really are as a person.
So are you someone that is good with overpaying a little to capture upside momentum plays?
If you prefer to avoid those stocks and sectors because you find them overvalued, you likely will not enjoy trading them.
Don’t subscribe to a service that posts only about the latest, hottest stocks if you prefer to find overlooked and undervalued assets. You will likely not find any of the information helpful and might even find it annoying and distracting.
These are not the stocks you are interested in and when they turn the wrong direction it can be infuriating, especially if you lack conviction in the first place.
Take some time at the start of the year to think about what kind of trader you are. Be honest with yourself and your trading will undoubtedly benefit.
Now let’s take a look at a couple of charts from both sides, the leaders and the laggards.
LEADERS
Two sectors that really stand out are Techonology (XLK) and Communications (XLC).
The Technology sector was up over 50% in 2023 and showed no signs of slowing down.
After seasonal selling from August through October, the techonology sector really heated up to close out the year pushing new highs.
I like XLK to continue towards $200 and then we’ll see how shares react.
That said, I prefer XLC as the communications sector has broken out after consolidating for half of last year.
GOOGL and META make up a sizeable portion of this ETF but other names like NFLX and TMUS have performed well and could see more upside.
I like the momentum for the communications sector.
LAGGARDS
Energy really struggled towards the end of 2023 and I am currently short in the very near term.
However, you can’t ignore two things about this sector.
First, the returns from 2021 through 2022 were phenomenal and if you got in you were able to ride XLE from the mid 30s up to a near triple in just a couple of years.
Second, if Berkshire Hathaway is buying up shares of OXY there might be something to the sector overall.
After a year of consolidation, this sector could find some footing as well as see some mergers and acquisition activity pick up which could provide catalysts for upside.
If interest rates start to drop I like another sector to do the opposite, and start moving higher.
Real estate started to heat up at the end of 2023 and I like it to continue to push higher as an overlooked and undervalued sector.
Now XLRE is above its’ anchored volume weighted average price (AVWAP) from the prior January highs and looking to break out.
I like this sector for the duration of 2024 as long as interest rates are held early and cut throughout the year. Things could really take off.
You could also look to XLF and KRE, the financial and regional banks ETFs respectively. If interest rates drop and consumer strength is maintained we could see positive economic growth push financials even higher after a lackluster 2023.
There is never a shortage of opportunities. I’ll keep bringing them to you as often as I see them!
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Have a great day of trading! Let me know how things go.
-Nate
This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.