“Buy and Forget” Is Not a Strategy

04/09/2012 3:30 pm EST

Focus: STRATEGIES

Toni Turner

Author, Short-Term Trading in the New Stock Market

When markets shift to risk-off, moving towards the safety and stability of utilities, health care, and consumer staples is wise, says Toni Turner, but “buy and forget” doesn’t work in these relative safe havens, either.

We’re talking sector rotation with Toni Turner, and Toni, in this kind of market, you see a lot of sector rotation going on, especially with the volatility.

What do you look for to tell you where things are going and when a sector might have topped out, and how do you protect yourself if a sector is rolling over?

What I do, of course, is I watch the market in general, as I’m sure you do. If the S&P and the Dow Industrials—there’s a big sector right there—and the Nasdaq, if they’re all going up and we’re in a glorious uptrend, then almost all sectors tend to benefit with the exception of maybe the less-fancy sectors like utilities.

Everybody thinks utilities are boring and we don’t want to be in them when the market is going higher because utilities don’t tend to trend very often.

They usually go sideways, and they pay nice dividends, but that’s the clue because when the market has gone higher and higher in an uptrend, and then it starts to wobble a little bit, you can almost tell that there is some volatility coming into the market if you see utilities start to perk up.

Then you know that people are leaving basic materials and they are maybe leaving technology, and they’re going into the defensive sectors. That would mean utilities, and sometimes telecom can be a nice defensive sector to be in.

Of course, we look at our consumer staples sector with Johnson & Johnson (JNJ), Walmart (WMT), and Phillip Morris (PM), because we’ve got to have to our cigarettes and our lipstick!

The drinks sector as well. You drink when times are good, and you drink when times are bad.

Yeah, you’ve got to drink, and those food and beverage stocks, and of course, the healthcare sector where we have drugs. Americans have to have their medication.

So people move out of the materials, the industrials, and some technology, and they go into the more defensive sectors, and that’s very prevalent.

A lot of people think when they jump into utilities—like Exelon (EXC) or Southern Company (SO) or even the utilities ETF, the Select Sector SPDR - Utilities (XLU)—they think, “OK, I’m safe now.”

Well, if the market goes down dramatically, everybody goes, and we learned that in 2008 and early 2009, so yes, you can hide, but put your stops on when you hide, too, because you might be better off on the sidelines.

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