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The Bear Market - Opportunities in the Sub-Sectors of the Market

The Bear Market - Opportunities in the Sub-Sectors of the Market

| June 29, 2020
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Are you looking to take a bit more of a risk in the current market?

In our last post, we talked about the major indices --- the S&P 500, the mid cap index, the small cap index.

Mid caps and small caps could be great opportunities. Broadly diversified among hundreds of to thousands companies, but certainly more volatile than the S&P 500.

Then, we dived into sector specific opportunities.

Those might be hundred or two hundred companies within 3 out of the 11 specific sectors of the S&P 500 and the Dogs of the Dow.

Again, even more risk because you aren’t as broadly diversified, but perhaps more opportunity.

BUT for those that have an even higher risk tolerance, there are sub-sectors that you might want to consider.

Sub-sectors are smaller sectors within the big sectors.

Let’s look at a few examples.Check this out!

In the chart you will see the S&P 500 and several sub-sectors. There are indices that hold airlines, home builders, casinos, regional banks and oil & gas exploration.

Remember--- there are 11 major sectors we have chosen from in our previous blog post. They include healthcare, consumer goods, utilities, telecom, technology, consumer services, real estate, basic materials, industrials, financials, and finally energy.

The chart above are sub-sectors of those major sectors:

  • The jets index is a sub-sector of the industrial sector.
  • The home builder index is a sub-sector of the consumer services sector.
  • The casino index is also a sub-sector of the consumer services sector.
  • Regional bank index is a sub-sector of the financial sector.
  • Oil and gas exploration is a sub-sector of the energy sector.

Take a look at the one month rebound in the sub-sectors in the chart. Huge growth in some of them. Home builders and oil and gas exploration have recovered a lot of their losses.

Although, all of these are doing worse than the S&P 500.

Whether we are talking about major indices, sectors, or sub-sectors, there’s a very specific kind of order you might want to take a look at.

If you have extra cash available to invest for at least 3 years, consider whether using a buy-limit order to take advantage of these kinds of opportunities is appropriate for your circumstances.

What is a Buy Limit Order?

A buy limit order is an order to purchase an asset at or below a specified price, allowing traders to control how much they pay. By using a limit order to make a purchase, the investor is guaranteed to pay that price or less.

While the price is guaranteed, the order being filled is not. If the asset does not reach the specified price, the order is not filled and the investor may miss out on the trading opportunity. 

Said another way, by using a buy limit order the investor is guaranteed to pay the buy limit order price or better, but it is not guaranteed that the order will be filled.

If an investor expects the price of an asset to decline, then a buy limit order is a reasonable order to use. If the investor doesn't mind paying the current price, or higher, if the asset starts to move up, then a market order to buy stop limit order is the better bet.

Final Thoughts

I’d suggest that we may not be done with panic selling and that a second wave of financial issues and corona issues could be coming before the end of the year. 

On the other hand, there’s definitely a chance that an additional downturn may never happen.

If there is one, it might take another 2 or 3 or 4 months - or my prediction might never get fulfilled if everything gets better.

With all the economic destruction and people hurting and businesses shutting down or at the very least at a lower capacity, I think this is why I think buy-limit orders could be effective in a buy-and-hold-and-adjust portfolio for some of these riskier positions.

If you have any questions about the current market and what investment opportunities are best for you, shoot me an email at dave@daviddenniston.com. I’d love to chat with you!

 

Advisory services through Capital Advisory Group Advisory Services LLC and securities through United Planners Financial Services of America, a Limited Partnership. Member FINRA and SIPC. The Capital Advisory Group Advisory Services, LLC (CAG) and United Planners Financial Services are not affiliated.

The views expressed are those of the presenter and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation. Neither United Planners nor its financial professionals render legal or tax advice. Please consult with your accountant or tax advisor for specific guidance.



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