Dan Hirst

You're right. We are hearing more about sector rotation, although as you indicated in your question, it's not something new. In fact it's an old technique. Let's take a look at what it is and then, where and how you can learn more about it.

SECTOR ROTATION: WHAT IT IS

Think of it as surfing the sectors or catching the next crest of the wave. It's an attempt to beat the market by anticipating what the crowd will buy next. However, it is not focused on individual stocks but rather on sectors of the market, such as technology, oil and gas, manufacturing, utilities.

Sector rotators continually put money into a few (one to three) sectors of the market at a time. They research industries rather than stocks.

The goal: to put money into the hottest sectors as they start to move up and then sell at the top or just when they start to decline.

Although individual investors are part of the herd that moves into certain sectors, the restless sector rotation by professional traders is what usually moves different parts of the market.

THE TECH/BLUE CHIP ROTATION

One of the most popular rotations of late has been the tech/blue chip rotation: when blue chips go up, technology stocks go down. You're undoubtedly aware of it -- when investors get nervous they take money out of high risk categories, like technology, and put it in the safer blue chips.

When they feel secure again, they move from the blue chips to the technology issues.

CAUTION: This is not an easy way for most individuals to make money. It can be nerve racking. It is difficult to jump from trend to trend in time to make money and before it's too late.

HOW YOU CAN PARTICIPATE

STEP #1. If you want to try this strategy, you need to track both individual sectors of the market as well as economic and business cycles. I recommend that you begin by reading one of several books on the topic.

Martin Pring's THE ALL-SEASON INVESTOR: SUCCESSFUL STRATEGIES FOR EVERY STAGE OF THE BUSINESS CYCLE (John Wiley)
Larry & Steve Hungerford's HOW TO BE A SECTOR INVESTOR (McGraw-Hill)
Dick Fabian's THE MUTUAL FUND WEALTH BUILDER (McGraw-Hill).

If your library does not have copies, they are available at amazon.com.

STEP #2. Then, log on to: http://stocks.about.com/library/bl_sector.htm and study the Sector Rotation Model. It will give you an immediate visual idea of what industries tend to perform well during various stages of the business cycle.

STEP #3. Become familiar with the S&P 500 SECTOR SCORECARD. It is continually updated and clearly indicates how various sectors are performing. You'll find it at: www.stockinfo.standardandpoor.com. Once on the home page, click on "All US Indices."

Standard & Poor divides the market into these ten major sectors:

Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities

On the S&P site, you can click on each of the ten sectors for a more detailed performance breakdown. For example, within the Consumer Staples sector, you'll find price changes (as a percentage) given for: 1 week, 13 weeks, Year To Date (YTD), 2000 and 5 years for:

Agricultural Products
Brewers
Distillers
Drug Retail
Food Distributors
Household Products
Packaged Foods
Personal Products
Soft Drinks
Tobacco

STEP #4. Read INVESTOR'S BUSINESS DAILY. The newspaper tracks industries in the "General Markets & Sectors" page.