As the Market Cycle and Economic Cycle meanders through the Sector Rotation Model, it is interesting to note that certain areas of the Energy Sector continues to weaken, while the Consumer Staples area is quitely being accumulated. If energy stocks do not begin to pick up momentum over the next few weeks, it will become crystal clear that the smart money is anticipating an economic slowdown soon.
While energy woes will be with us for sometime, sub-sectors within the energy sector will probably outperform the major integrated oils. Longer term, I do not have a problem owning the integrateds, but it looks if Natural Gas will steal the spotlight for the next several months.
Natural Gas stocks like Chesapeake Energy (CHK) should perform well in the months ahead. Oil refiners should continue to firm as refining capacity remains a problem, and rumors of continued consolidation remain strong.
To better position ourselves for a shift in focus among investors, we are going to sell Chevron (CVX) from the IA portfolio. We will use the proceeds to buy another major refiner, Marathon Oil (MRO). Because of MRO's refining capacity, and geographical local (away from the Gulf Coast), the company looks poised to be a takeover candidate for a major integrated looking to increase its refining capacity. We will by MRO for the IA portfolio tommorow (Tuesday).
Sector Outlook
The S&P 500 is trying to climb out of its hole, but is still down for the year. Oddly, only 3 of the 10 major economic sectors are in positive terrotory for the year ( Healthcare, Utilities, and Energy). Given the adverse conditions that investors continue to face (inflation, interest rates, energy prices), the stage is set for defensive stocks such as Food, Soft Drinks, Beer, Household Products, Tobacco, and Personal Products to make their move.
Since we already own Coca-Cola (KO), adding companies such as Anheuser Busch (BUD), Nestle' (NSRGY), and Proctor & Gamble (PG) make sense. The Staples area has been trading in a very tight range over the past 10 months, and its looks as if they are starting to make a move. If you do not want to buy 4 Consumer Staples stocks, you can own the basket by purchasing the Staples ETF's, the XLP's (XLP).
I will also be adding BUD, NSRGY, and XLP, to the IA protfolio tomorrow.
