A.I.M. Users Bulletin Board

[SFSecurity]

Hi Doug, Thanks for the commission info.

As to ETF sector rotation, I'm not sure what would be a good index to guide the rotation. Clearly what state the market is in is a very subjective call. Back to my mother's notes for a moment, she notes that,

In every rising Bull Market usually 2 to 3 corrections... 20-30% 2-300 pt adjustment

Remember that she was writing in 1987 so 2-300 points would be about right. While the 19.1% October, 2014, dip just misses her minimum I think it qualifies overall.

Okay, we know there will be corrections within a bull market and it seems logical to me that some sectors would be down more than others during these corrections. As Malabre paraphrases many of his day in his book, "Investing for Profit in the Eighties", "The business cycle is alive and well and living in the United States." I think 2001-3 and 2007-9 are proof of that this truth still lives here. Then, too, there are two different cycles to track,; the business cycle and the stock market cycle. My understanding is that the stock market tends to lead the business cycle by 3 to 12 months, probably around 6 months in most cases. So while a sector is still going gang busters the market is already starting to claw back.

Given AIM likes volatility, do we want to move into the sectors with the greater likely loss as they head down to capture sells on the way back up then rotate out of them when we are likely to not get any more sell signals - go to a zero position? Seems like one possible, logical choice. Now what index should we use to find them? I have not found any index that lets us clue into which they will be; however, there is historical data about this. I suspect we will have to create our own benchmark.

We can look to the extension of the cycle chart posted in one of the AIM forums that I posted here as one starting point and try to chart each of the sectors and match them to the scale along the bottom. Then, I think, select the ones with the most volatility as the base group to use. Given your prior results, it seems that a smaller, less diversified group will capture more of the volatility. There are charts at http://stockcharts.com/public/1842472 that might help.

Alternatives are the approach that Toofuzzy suggests of a 13/30 simple moving average (SMA) crossover, the 10 month SMA crossover of the Ivory Portfolio, the 200 day SMA crossover, or what one person I know of uses, a ten week SMA advanced 3 weeks to predict which direction a sector is moving. Myself I would probably elect to use an exponential moving average (EMA) as it tends to be less subject to whipsawing.

Beyond that, at this point I'm out of ideas, alas.

Warmest Regards,

Allen