Do You Even Pairs Trade? | Newsletter Lite
Frank Kaberna \ Chief Content Strategist
Extreme Sector Rotation
As of last Friday, the industrial sector outperformed technology stocks by nearly 10% in the month of March; and just two weeks in, energy was trading almost 10% on top of tech before coming back to a more normal difference of 4% month-to-date.¹
The Year in Sector Rotation (Energy vs Industrial vs Technology)
Source: dxFeed Index Services
Convergence vs Divergence
Active traders can potentially profit from a flat stock market’s battling inner workings via the pairs trade. Small Stocks (SM75) futures bundle industrial, energy, material, financial, and technology stocks together into a single contract, while Small Technology (STIX) futures exclusively hold tech stocks. The two products have captured much of the sector rotating action of the last month and beyond.
A sideways equity index isn’t a good enough reason for inactivity; there’s always something to do in this greatly diverse stock market.
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¹ All statistics computed as of 3/26/21 using XLK, XLE, XLI