Tuesday, August 31, 2010

Follow the Sectors for Maximum Profit

Stock Market Sector Rotation
Click Here To Follow the Sectors, not the Broad Market Indexes


"Investors that understand how market indexes are constructed uncover great opportunities"

Consider these 2 questions carefully

* With over 10,000 listed companies in America, are the 30 companies in the Dow Jones Industrial Index a true representation of the market?

* If the S&P500 Index is in a downward trend, does that mean all stocks and sectors are performing poorly?

Learn to tune out noise

Obviously, the answer to the above 2 questions is a resounding "no". Media reporting of the daily movement of stock market indexes has reduced the analysis of the market into a couple of meaningless sound bites that serves no useful purpose for investors with a strategy.

"Dow up 130 points today"

"Stocks retreated sharply today taking 150 points off the Dow"

"The market opened in weak territory on rumors of..."

The unfortunate result of this reporting bias has been the "conditioning" of mainstream America to emotionally react to a daily fluctuating average, and make ill-advised investment decisions with their life savings.

What to remember about Indexes

An index is simply an average of it underlying parts.

A Numerical Example to make the point:

Suppose we created a simple index of the market consisting of 20 equal sized sectors of the economy, each starting with a value of 10. In this example, the index starts with a total value of 200 points (20 sectors x 10 = 200 points).

Now lets assume at the end of year 1, the index is now worth only 175 points (it dropped 25 points, or 12.5% of its value).

If we break down the yearly result by sectors we discover:

* 14 sectors each dropped in value by 3 (a total value of 98)

* 4 sectors were unchanged (a total value of 40)

* 2 sectors increased by 8.5 points each (a total value of 37)

* Overall index total = 175 (down 25 points, or 12.5%)

The Results

* If you bought the index, your loss was -12.5%

* If you bought the top 6 sectors your gain was +28.3%

* If you bought the bottom 6 sectors your loss was -30%

* If you bought the 2 strongest sectors your gain was +85%

The Bottom line

If you continuously invest in the strongest sectors of a market, your returns will outperform that market index.

It's really that simple.

How We Identify Market Leading Sectors

The Sector Timing Report strategically analyzes and ranks sectors indexes and alternate asset classes by their performance strength using our proprietary SECTOR SCORE ranking engine. The SECTOR SCORE is a multi-variable mathematical model that analyzes multiple timeframes of price trend data movement within each sector, as well as its comparative pricing movement in relation to the overall market index. The Sector Timing Report then ranks sectors in descending order of SECTOR SCORE each month to sort the marketplace leaders to the top of a ranking list.

The highest ranked sectors are outperforming the rest of the stock market index, and this is where you will want to position your portfolio. As leadership of market sectors change, you will see new leading sectors rise to the top of the ranking list, while under performing sectors drop in ranks.

Click here to learn more on profiting from sector rotation and how to boost your portfolio results substantially overtime.