I’ve been meaning to create a sector rotation chart based on Twitter Sentiment for a while and finally got around to it today.  The chart below represents the nine major sectors as represented by the SPDR ETFs.  The legend next to the chart gives the ETF used for each sector.  If a sector has positive Twitter Sentiment (7 day average) then it is represented on the chart in green.  If the sector has negative Twitter Sentiment then it is represented in red.

The theory behind a sector rotation chart is that during bull markets or extended rallies, Financials, Consumer Discretionary, Technology, Basic Materials, Industrials, and Energy stocks perform well.  Bull markets often start with financials, consumer discretionary, or technology leading.  Then as the rally gets established the more cyclical sectors of basic materials and industrials start to participate.  Late stage bull markets see energy leading.  It doesn’t always work out that way, but in general as markets move from the early bull stage to a final top and then turn bearish, money managers rotate from sector to sector.  They do this based on their reading of the economy and which sectors they believe will perform best at any given time.

• XLB – Basic Materials
• XLE – Energy
• XLF – Financials
• XLI – Industrials
• XLK – Technology
• XLP – Consumer Staples
• XLU – Utilities
• XLV – Health Care
• XLY – Consumer Discretionary

Bear markets see Utilities, Consumer Staples, and Health Care out perform the rest of the market on a relative basis. So when you look at a sector rotation chart you want see the left side of the chart green to indicate a bull market.  Green on the right hand side warns that money managers are getting defensive.

Today we have a situation where financials, consumer discretionary, and energy have high sentiment from traders on Twitter.  This helps the bullish case.  Unfortunately, technology and the cyclical sectors are out of favor which warns of a slowing economy.  To add to the bearish case, all of the defensive sectors have Twitter Sentiment above zero.  This signals that money managers and traders are bullish on the defensive sectors, which doesn’t bode well for the market.