sector rotation strategy

Quote from ig0r:

Regarding shorting, sure, you can throw that out. Do you realize what I'm saying though? Regardless of the reason for why the sector we are long is performing better than the others, we hold it until a different sector rises above it in % gain from the point we did the picking (and then minus an additional 3 months because of the original look-back period). If you keep rotating and switching to the sector that has had the best % return to date, you will have had it's performance as well. As you know sometimes different sectors rotate in and do extremely well like you gave the security example, another would be mining right now; over the past year, the DJ mining index is up 242.44%, outperforming all other industries. By using this method, you're portfolio would have made about those returns over the past year :) No need to hand-pick stocks, etc. etc. Just continue to rotate into the best performing index/industry/sector from a given date.
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I understand that but you can improve returns by going further by picking stocks. Which again I do on technicals only not on fundamentals. I buy stocks breaking out to all time high only from sectors doing well.
Also in some sector for example the music and video stores the sector did exceedingly well thanks to one single stock NFLX while all others were going down or consolidating so stock selection is important. Similarly in retail sector stock selection can increase your returns significantly.
 
Quote from agrau:

Grob mentioned 200 sectors he monitors, easyguru has 239 in his TC2000 database.

I wonder how many sectors one show have, and how big/small a sector should be.

easyguru:


Any ideas which construction method for sector indices would be most appropriate? And which sector size would be the right balance between too sensible and too static?

Personally, I am tending to a arithmetic, equal dollar weighted index which gives each component equal importance. Regarding the number of sectors I lean towards a number of 59, as this the number of industries as defined by the GICS (Global Industry Classification Standard) of Standard & Poor's.

Thanks,
agrau
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Most data provider get their sector classification information from outside companies. The S&P is one such. TC2000 gets its information from Media General Financial Services, which also provides the data to other quote providers.
http://www.mgfs.com/html/index.shtml
MGFS places all companies into a 3-digit industry group classification system. The first digit relates to one of nine macroeconomics sector classifications, the second digit has thirty-one classifications of middle-tier business segment groups, and third digit relates to one of 215 distinct business sectors. ( currently they have 239 groups)
IBD has its own industry classification, which is much better because they subdivide industries much better,( for example most databases have bundled whole host of things under internet but the IBD database treats it differently) but it is not easily available unless you subscribe to one of their higher end institutional product like WONDA which gives you an interactive database of IBD classification.
If you do to broad a classification then you will not find it so meaningful at the same time if you go too micro then it will defeat the purpose. I also don't now why you want to reinvent the wheel use publicly available database as they have arrived at some consensus on this and ipo get allotted to sector by them, while you will have to do it manually everytime there is a IPo or takeover or delisting.
One good free source is
http://moneycentral.msn.com/investor/market/top10industries.asp
 
Quote from easyguru:

I also don't now why you want to reinvent the wheel use publicly available database as they have arrived at some consensus on this and ipo get allotted to sector by them, while you will have to do it manually everytime there is a IPo or takeover or delisting.
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Thanks easyguru, much appreciated. - I re-invent the wheel for several reasons, most promiment being that I am for several reasons tied to my GNU/Linux box. All affordable data provider stick with Micro$oft, so these are no option to me.

Rolling my own lists isn't a problem anyway - I'll just throw an URL with sector descriptions onto a self-written program and here I go. No big deal.

Best,
agrau
 
Quote from Grob109:

Yes. The way to make money trading in this "kick off" is to be ready.

You can do a weekly analysis of the sectors. Intermediate term movement is the focal fractal. If you look at school of trout in a pool of water you see how it works.

The fish school. Among them there are fish who turn out to give the school a sense of action. In a small gathering within the school, some fish beging to move as a group. you see the velocity (I measure it using spread sheet that has motion indicators (FA) as criteria.) The fish are not changing size (think value (price)). They accelerate out of the school and parts of it follow. Thus the market is moving being lead by a group I call a sector.

That is the NLP of it.

To make money you set up a quote sheet to list each stock in the sector. Order it by "unusual volume" if you use qcharts. This puts "leaders" at the top.

As you watch intraday you see the cummulative volume forthe day and you compare it to 65 day average using "unusual volume".

When the volume easily passes the lowest daily volume values (DU for Dry Up), then you get to see price go green and the % net for the day goes up by 5% of more within an hour of passing through the DU volume.

As the top of the list "peels out" the others begin to follow. there is a saying "Watch the leaders and trader the laggers". It is a simple anticipatory low risk strategy.

You will see that the peel out takes up to three days. Not all will go the first day. You asked about that already because of your "market sense".

The sector move will go on for an intermediate term period. but if you are really pushing "making money" and having a steep equity curve, you will be a "trader" instead. You trade the "peel out" on the highest volatility "lagger" stocks in the sector.

For those that know I "crossover' trade based on money velocity, you can see here that this is a vital aspect of getting to making money on a "ridiculous" unbelievable money velocity level.

if you keep sector "portfolios" on stocktables.com, you will notice that they get lots of attention form the programs behindstocktables.com.

You will be exiting with profits as the talkinh heads and lists begin to note the sector. The herd will be arriving. So then you witness "waves of advances on the dialy charts. About 5 waves per 6 months.

Look at HOV from NOV 2002 onward. The channel is up. You own for the right to left traverse. Since the retrace (Trend Fader tries to trade these)falls off instead of going up, you sideline and wait for the right side of the channel to be hit and the price to take off again and again and again.

Splicing about four or five sectors into your money streams gives you a daily selection of BO stocks.

Doubling capital takes about 2 1/2 quarters. HOV does better as you see. MR Market missed that one after I suggested it to him. lol.
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This is really great information Grob. Thank you very much. I'm going to study this thread. It's rich with info. You should write a book.

Ripple effects: Follow the international markets's affects; then down to national, studying sector movements, and then down to a particular stock.


Is this a good gist for a strategy for understanding trends? How many monitors will I need for this?

So basic [?], and now I'll have to do the work.

Will you post a list of books that will
give me the info I need to implement this. Nothing superfluous, I need to get the basics down, and then I'll articulate the system over time. Notwithstanding, I'n only interested in being a position trader.

Start at the top with international market affects?

If not, then thank you very much because I feel I finally know enough to learn what I need to in order to consistently make money.
 
I read the posts here. And it is clear that there is an excellent understanding that the power of considering market sectors is pervasive and provides a superb context for making money.

I want to respond to the adroit way in which, logically, people have determined that we are looking at a big picture and properly.

The global picture does really drive the sectors of the US trading markets. Invest the time in skimming business week to see the pictures taken in China. Regard the economic numbers along a few columns.

People all over the world are intelligent and leading their lives to forward their interests. We are now connected electronically and everyone is empowered to perform on a level playing field.

The US has stepped aside from the enduring process of iterative refinement (by the numbers and rational reasoning processes) to practice operating from an idealistic black and white viewpoint. As an aged person, I am experiencing living in the most "expensive" decision making period I have ever witnessed. We (the US) will pay the piper for this beyond my time horizon.

In contrast, there is certainly an alternative taking effect around the globe that has a silver lining. The world is actually very capable of taking care of itself and bettering this situation and doing it rapidly. Global inovation based upon the corporate model will prevail. And that is where market sectors play out.

At all times various market sectors will step into the limelight to factor the short term opportunities directly into accelerated capital appreciation.

The world has never seen before the rapidity with which wealth will be created. Contributors here recognize and describe this. I especially emphasize the sectors that supply other sectors that are close to the ultimate consumer.

There are parts of the world that will be acting as resources for other parts that are going to grow in quality of life beyond belief.

The US had the opportunity to lead the world's process of "incorporating". The energizing of the globe as a needs delivery system is going to be based on the corporate financial model and financial equities markets throughout the world will take the measure of the wealth building and built.

A swedish based furiture company allowed Bill Gates to be passed in wealth by creating a delivery system for furniture.

We as traders need to intercept this opportunity. It is my belief that "creaming the markets" is the way to exceed anything as yet seen it terms of making money and acquiring great wealth for individuals.

I devote one screen to a display of a map. It is a map of squares(rectilinear shapes) bunched by sectors that are bounded with frames. All squares are colored by a red to green spectrum that shows their daily losses (red), neutral (grey) or gains (green). This is rough and crude and interesting. Background stuff.

I run quote sheets where leading indicators of price are shown for stocks that exhibit high money velocities. Hot lists. Cross over trading with amounts of money that can not be used in leveraged places where the markets just can't handle the capital.
Even with hot lists, money has to be "flowed". Flowed at rates dictated by trading block size and cummulative daily volume. It is like an individual's printing machine for printing money.

The amount of capital available to take out of the market has no real limit and an individual can never affect the market to any extent presently. In the years ahead all of this will be changing by orders of magnitude.

In this thread it has been pointed out that all of this can be easily systematized for the persent and for the foreseeable future. It is correct to use a ZOOM in approach. I also tenure performers.

For sectors, focus on conventional sets.

To cut to the chase (KISS) for now, use several (three) sets of rankings for the sectors. Short term, middle term and longer term. We need to see the rankings change (This is velocity because you have a fixed periodicity of sampling) and to know their rate of change This is acceleration by the same reasoning). You get from this, the operation of the fundamental precept of snthesizing harmonics. (See aluminum and housing construction presently as already pointed out.)

Use the leader/ lagger risk minimization strategy.

Use the compound interest formula (See the set of Q's that I recommend everyone work through; this is Q 1). Get it very straight that doing more cycles is much more important than profit per cycle. Cut off the ends of cycles to do this.

Learn to enter late and leave early in a cycle. Only hold through maximum money velocities. Acceleration from zero is not important compared to the maximum trajectories that occur when price is going through the axis of the cycle. When a stock begins to decelerate the exit is predicated on a switch that occurs as another stock accelerated into the maximum money velocity band.

Get it straight that you cannot optimize making money from an intuitive point of view. You are not smart enough at this point to deal with exponential functions which is the nature of all natural phenomena. Markets are natural living entities.

The huge bottom line in markets is that the big players are screwed. Individuals are the ones that make money.

as time passes and you have a lot of capital, you will experience constraints for moving that capital. There is no difficulty in pulling capital out of an equity and applying it to another and nettiing low seven digits on that one effort in a single money stream of many in the overall accounts.

What is required is to always have a selection of opportunities.

The primary function you have to assume, in time, is making cash available for opportunities that you have. Obviously and uniquivicably, the opportunities lay in making continuous and excellent use of sector analysis and universe selection/maintenance (add/delete function).

I surround the scope and bounds of equities investing with being aware of what is going on in the world. I have nine pairs of mismatched processes (slow(column 1) compared to faster(column 2)). I look at the consequences (column 3) of these pairs not working. I also examine what might be done to solve the consequential problems (column 4). These 36 considerations often point out sector hot spots and opportunities.

One pair is legal processes (slow) vs inovation (fast); Money and size controls ("making markets"* consequence); use alternatives to legal processes (solution). *We will play here.
 
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