STRATEGIES

A proven combination of technical methods that successfully identified the strongest and weakest sectors in 2011 is applied to discern where the best buying opportunities will appear in 2012.

The sector performance in 2011 further illustrates the year’s volatility. Many sectors had a few strong quarters, but the yearly performance numbers do not reflect the wide price swings. Since the S&P 500 and its tracking ETF, the Spyder Trust (SPY), were essentially flat for the year, all the other Select Sector SPDR ETFs except for Financials (XLF), Materials (XLB), and Industrials (XLI), performed better.

As the table below indicates, the swings in the Select Sector SPDR - Energy (XLE) were probably the most dramatic. XLE had the two best quarters, as it was up 16.8% in the first quarter and up 21.8% in the fourth quarter. However, due to the 22.3% drop in the third quarter, XLE was only up 1.3% for the year. If it wasn’t for the strong fourth quarter, the yearly numbers would have been much worse for all of the sectors.

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The Select Sector SPDR - Utilities (XLU) was the star performer in 2011, up 14.8% while both the Select Sector SPDR - Consumer Staples (XLP) and Select Sector SPDR - Health Care (XLV) both gained over 10% for the year. All are considered defensive sector ETFs, so in hindsight, this should have not been a surprise. Health care was a favored destination starting in early 2011, but it would have been nice to have avoided the 10.7% drop in the third quarter.

It is no surprise that the Select Sector SPDR - Financial (XLF) was the worst performer, down 18.5% for the year, and the second worst performance was the 12.8% decline in the Select Sector SPDR - Materials (XLB). The relative performance, or RS analysis, kept us pretty much out of these two sectors, but the question now is regarding where the opportunities will be in 2012?

NEXT: Will 2011's Standout Sector Shine Again?

Tickers Mentioned: XLU, XLV, XLI, XLP, XLB