Supercharged Sector Rotation Investing

One of the most common pitfalls of following a sector rotation investment style based on fundamental analysis of economic conditions is that getting the timing right can be very difficult.  

Even professional economists have many different and conflicting predictions on where an economy is headed.  If professional economists cannot even agree on interpreting these basic business cycle statistics, what hope does a DIY investor have?  

Luckily we have discovered a simply way to time the rotation underlying the economic cycle using leading indicators that anticipate the cycle rotation before it actually occurs.

Study the Real Leading Indicators

We have flipped the process of sector rotation on its head and focus on studying what is actually happening to the stock market valuations of each sector of the economy.  As most people know, the stock market is a leading indicator of where the economy is headed, and favored industries and sectors will see changes in their pricing 6 – 9 months before actual improvements in their fundamentals.  We have found that focusing only on fundamental analysis of lagging economic data makes it virtually impossible to get the timing right on any sector trade.  For this reason, we analyze the stock pricing changes of sectors and industry groups as the basis of our sector rotation strategy.

Monitor Trend Changes in the 11 Key Sectors

Channel the focus of your sector rotation efforts on analysis of trends within the 11 key sectors of the economy.  What sector indexes are performing well right now?  How many are in an established uptrend?  What is the strength of that trend?  What sectors are in a downtrend?

Rank the 11 Sectors in Descending Order of Strength

Now that you have done your basic trend analysis and ranked each sector in descending order of strength you now have a list of investment prospects. The sectors at the top of your list are your best candidates, and are the sectors performing best at this current stage of the economic business cycle.

Repeat Ranking Process at Scheduled Intervals

To ensure your portfolio remains invested in the top performing sectors at all times it is important to repeat this ranking process at regularly scheduled intervals.  As some of your current sector investments drop in the ranking order, replace these positions in your portfolio with the new sectors that have risen to the top of the ranking list.  Over time you will find that your portfolio is constantly invested within the top performing sectors of the economy, and you don't have to spend so much of your time reading and monitoring economic data.

DIY Resources for Sector Rotation Investing

To effectively practice a Sector Rotation and Market Timing process on your own will require a commitment of time, discipline, thoughtful analysis, and access to stock charting software and a good stock data service.  It is also recommended that you take the time to read several books and articles on technical analysis, fundamental analysis, and prepared to be fluent in the programming language of your stock charting and analysis program.

Software

A good software package is critical and will save you many hours of time per month.  You will need stock analysis software programs that contain a programming language so you can tell it what to scan for in the markets.  Here are a couple of the leading programs out there:

Metastock - $565 to $960 per year software license
TradeStation - $1,900 per year software license
eSignal - $1,140 per year software license
OmniTrader - $495 to $1,995 per year software license

Data Services

QuoteCenter - $1,300 per year data feed license
Reuters Datalink - $240 per year data feed license
OmniTrader - $239 - $948 per year data feed license

Time Investment

Expect to spend 40 – 80 hours of your time learning the software and programming language for the market scanning features.  Getting acquainted with technical analysis, market timing, and sector rotation theory will usually require reading 5 or 6 of the key textbooks on this subject.  People with mathematical backgrounds will find this easier reading.  Once you get going, expect to spend 10 – 12 hours per week to run your scans and analysis as a minimum time investment.

Newbies - expect to spend 500 - 750 hours per year  (10 - 15 hours per week) - that's
Investors - expect to spend 375 - 500 hours per year  (7 - 10 hours per week)
Experts - expect to spend 250 - 700 hours per year  (5 - 7 hours per week)

What is the real cost of your time?  Even at minimum wage levels this time commitment will cost you anywhere from to $1,812 to $5,437 per year.  But if your like most of our readers, your household income exceeds $100,000 anually and this time commitment is really worth somewhere between $12,820 and $38,461!   Now imagine reducing your time commitment to 10 minutes per month... read on to discover how.

A DIY Approach Requires a Big Investment of Time and Money

It is a big time commitment and will also require an annual budget of $1,000 - $3,000 dollars depending on what software and data package combinations you select.  The real cost for most people is the opportunity cost of time.  How much is 1 hour of your time worth?  Now multiply that by 40 – 60 to get an idea of your monthly time commitment.  If you cannot afford to invest the required time on a regular and consistent basis you will not be able to sustain a market timing sector rotation strategy for your portfolio over the long term.

Does a Simpler Alternative Exist?

Yes!  Imagine reducing YOUR time commitment to under 10 minutes per month and reducing YOUR costs by up to 92%

If you would like to reduce the cost and time commitment required to implement a market timing sector rotation strategy you can join a group of other like minded investors and tap into the power of economies of scale.  We'll show you exactly how to do this in our next segment.

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