(RSX) The Sector to Buy on the Dips

Increasing concerns about Ukraine and Russia have caused fear to return to the stock market. Foreign markets were punished, especially the Market Vectors Russia ETF (NYSE: RSX), which is down 11.54% over the past week.

However, the U.S. market has seen minimal weakness, down yesterday only 0.74%. Instead of panicking, you should welcome any sell-off that the market graces us with.

The best thing to do when the U.S. market corrects is to think about which sectors you’d want to own, long term, when the time is right.

The Sector to Own Right Now

The healthcare sector has been among the strongest major sectors in this bull market, and it’s getting stronger. When you see momentum accelerate the way we have seen in healthcare, it’s unlikely that sector’s outperformance will end any time soon.

Take a look at the chart below. It shows the exchange-traded fund Health Care Select Sector SPDR (NYSE: XLV). The lower third of the chart shows the fund’s price action relative to the S&P 500?s price action.

In other words, when the orange line is going up, it means the fund is outperforming the S&P, and when it’s going down the fund is underperforming.

As you can see, in most of 2011, the fund underperformed or matched the S&P 500?s returns. But notice how the strength increased tremendously in 2012 and even more in 2013.

Over the last two years, the healthcare fund outperformed the S&P 500 by 30.18%. More than 12% of that outperformance happened just in the last six months!

The strong action continues to accelerate.

With the long-term relative strength picking up in this sector, this is definitely one that I want to be a buyer of on the dips.

This is just another example of relative strength investing. Studies have proven time and time again that relative strength investing provides superior returns to the general stock market.

Why does this strategy remain effective over such a long period of time without everyone catching on, rendering the strategy ineffective?

Because buying stocks or sectors with superior performance is an uncomfortable strategy. Investors are scared of buying at the top and feeling stupid.

Thus, if you employ relative strength strategies you will still be in the minority of the individual investor population, which is a good place to be in the financial markets.

Most investors are secretly willing to sacrifice profits for comfort. Being part of the minority is uncomfortable, but I’d rather be uncomfortable and profitable. Wouldn’t you?

Good investing,


View original at: Investment U


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