Netflix shares soared this past week on better than expected subscriber growth. Shares were up nearly 20% on the Thursday after their earnings call. 

When asked about his company’s soaring share price, Reed Hastings, the CEO of Netflix replied, “I think it probably shows why at least I should keep my day job and not try to be a stock picker. When the stock was half this price I described it as euphoric. So it’s a mystery to me. I think I’m out of the stock commentary business.”

I couldn’t have said it better myself. We should all get out of the stock commentary business.

If the CEO of his own company can’t make rhyme nor reason of the price of his own stock, what hope do the rest of us have?

I was explaining to a friend recently my core investment philosophy in a few simple steps. Here’s the way that I put it:

  1. Stop listening to the stories we tell ourselves in our heads… they’re mostly media driven non-sense.
  2. Intelligently surrender to the markets by:
    1. Finding a good source of investment ideas;
    2. Applying a simple but disciplined portfolio / risk management approach;
  3. Profit.
  4. Enjoy.

In that spirit I’d like to share with you some research that my team and I worked on this week combining the Select Sector SPDR ETFs and TradeStops Pro tools.

The Select Sector SPDR ETFs are a unique set of ETFs that divide the S&P 500 into nine different index funds – consumer discretionary, consumer staples, energy, financials, etc. You can learn more about this group of ETFs here.

We took each of these 9 ETFs and ran them through two of our TradeStops Pro tools – Re-Entry Rule and Smart Trailing Stop – starting from early 2009. We enter when a Re-Entry Rule is triggered and we exit when a Smart Trailing Stop is triggered.

The following charts show you how these tools performed on each of these 9 market sectors and also give an idea of how strong each sector is currently performing. We’ll take each ETF alphabetically by symbol (and provide the ETF publisher’s description of the ETF in italics).

In each chart you can see the Smart Moving Average (basis for the Re-Entry Rule), Smart Trailing Stop and Re-Entry Rule signals.

XLB – Materials

This Index is primarily composed of companies involved in such industries as chemicals, construction materials, containers and packaging, metals and mining, and paper and forest products. Among its largest components are Monsanto, E.I. DuPont de Nemours & Co., and Dow Chemical Co.

investment philosophy

TradeStops Pro Status:

XLE – Energy

Energy companies in this Index primarily develop and produce crude oil and natural gas, and provide drilling and other energy-related services. Leaders in the group include ExxonMobil Corp., Chevron Corp, and ConocoPhillips.

Energy

TradeStops Pro Status:

XLF – Financials

A wide array of diversified financial service firms are featured in this sector with business lines ranging from investment management to commercial and investment banking. Among the companies included in the Index are JPMorgan Chase, Wells Fargo, and BankAmerica Corp.

Financial

TradeStops Pro Status:

XLI – Industrials

General Electric Co., Minnesota Mining & Manufacturing Co., and United Parcel are among the largest components by market capitalization in this sector. Industries in the Index include aerospace and defense, building products, construction and engineering, electrical equipment, conglomerates, machinery, commercial services and supplies, air freight and logistics, airlines, marine, road and rail, etc.

Industrial

TradeStops Pro Status:

XLK – Technology

Stocks primarily covering products developed by internet software and service companies, IT consulting services, semiconductor equipment and products, computers and peripherals, diversified telecommunication services and wireless telecommunication services are included in this Index. Components include Microsoft Corp., AT&T, International Business Machines Corp., and Cisco.

Technology

TradeStops Pro Status:

XLP – Consumer Staples

The companies in this sector are primarily involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products, and personal products. Component stocks include Wal-Mart, Proctor & Gamble, Philip Morris International, and Coca-Cola.

consumer

TradeStops Pro Status:

XLU – Utilities

The Utilities Index primarily provides companies that produce, generate, transmit or distribute electricity or natural gas. The component companies include Exelon Corp., Southern Co., and Dominion Resources Inc.

Utilities

TradeStops Pro Status:

XLV – Health Care

Companies in this sector primarily include health care equipment and supplies, health care providers and services, biotechnology, and pharmaceuticals industries. Pfizer Inc., Johnson & Johnson, and Abbott Labs are included in this sector’s mix.

Health_Care

TradeStops Pro Status:

XLY – Consumer Discretionary

Industries such as automobiles and components, consumer durables, apparel, hotels, restaurants, leisure, media, and retailing are primarily represented in this group. The Index includes McDonald’s, Walt Disney Co., and Comcast.

Cunsumer_Discretionary

TradeStops Pro Status:

Conclusions and Observations

So out of 9 sector ETFs only 2 are currently stopped out by their Smart Trailing Stops – Energy and Utilities. Of the remaining sectors, only one sector (Materials) has even pulled back into its Low Risk Zone.

The remaining six sectors are all full steam ahead with active Smart Trailing Stops with five of them at or very close to new bull market highs.

So much for the media driven message that “the sky is falling!”

Here’s a table showing all of the Re-Entry Rule / Smart Trailing Stop trades in these 9 sector ETFs since 2009:

Sectors
There have been 14 trades since 2009 and only one of them has been for a loss. This system even made money in Energy over the last 6 years.

I love the above table of trades because it epitomizes what I try to do as an investor myself and what I try to help others do. There’s only a single small loss and there are multiple large gains including open gains of 256% in Consumer Discretionary (XLY) like Walt Disney, McDonalds and Comcast.

That wouldn’t have been I would have predicted 6 years ago.

That’s why, like the CEO of Netflix, I’m getting out of the “stock commentary” business and why I hope you will to.

To the growth of your wealth,

Richard_Signature
Richard M. Smith
CEO, TradeSmith
Founder, TradeStops.com