10 Sectors to Target for Short Plays

We also look at stocks above the 80-day moving average vs. analyst rankings

Senior Quantitative Analyst
Nov 9, 2022 at 9:00 AM
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The S&P 500 Index (SPX) is down about 20% from its peak at the beginning of the year. Since then, there is only one sector that has had a positive average return among its stocks. Unsurprisingly, it’s the oil & gas and coal sector. This week I’m looking at the 45 sectors we track, and I will list those that have performed the best and worst since the market’s peak. I’ll also show the sectors that analysts have changed their opinion the most on. Finally, I’ll list sectors where there is a dichotomy by how they’ve performed and how analysts have changed their opinion. This should give us some ideas for which sectors provide the most opportunity going forward.

Price Performance

This first table lists the 10 sectors with the highest percentage of stocks above their 80-day moving average. I already mentioned the first sector in the table, oil & gas and coal. It’s the only sector that has performed well since the beginning of the year. The other sectors are the ones that have held up the best. The life insurance sector catches my eye. It has held up relatively well by this measure, yet analysts have gone from bearish to more bearish. At the market peak, 39% of analyst recommendations were a buy. Currently, only 30% of recommendations are a buy. As a contrarian, I believe positive price action with bearish sentiment generally leads to bullish outcomes.

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This next table shows the sectors with the lowest proportion of stocks above their 80-day moving average. Analysts look too bullish on those first two sectors. The two sectors, real estate investment and services development and the alternative energy sector, showed analysts have remained bullish since the beginning of the year despite only 12% and 14% of stocks being above their 80-day moving average, respectively. Those are sectors I could target for short plays.

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Contrarian Sector Analysis

Finally, I’ll use these two stats, percent of stocks above the 80-day moving average and change in analyst ranks, to list sectors where there’s a dichotomy between how stocks have been performing vs. how analysts have changed their opinions on them.

This first table shows sectors where at least half of the stocks are above the 80-day moving average, but analysts have become more bearish on them. Based on our contrarian philosophy, I expect this type of set up to have bullish implications.

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Naturally, below is a list of sectors with a bearish contrarian setup. That is sectors where price action has been poor (few stocks above the 80-day moving average) but analysts are more bullish on. Specifically, these are sectors with less than 40% of stocks above their moving average with the biggest increase in percent buys (or smallest decrease since there aren’t ten sectors in which analysts are more bullish).

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