Replies to post #27054 on Cycle Trading

[Duma]

Since you brought up the idea of not trading some of the sectors, I though today was a good day to do a bit of an analysis. I have been thinking about maybe not trading some of the sectors now for a couple of months. If I could identify say 3 not to trade that would certainly reduce the workload, although it is getting pretty easy to do.

So there are two questions. 1 Which sectors to eliminate and 2. What are the possible downside of doing so.

I made up the following chart to see what insight it might give me. I looked at the past 5 years and ranked the sectors based of the average. Of course, Tech was on top. I also looked at the low and the high over the 5 years. The low to high would at least give me an idea of what was possible for each sector. To my surprise, it says every sector has its day to shine, but again tech really stood out. My conclusion lead me to say, trade all the sectors since you never know when tech will stink and somebody else will shine.



Then my next thought was this, there are 3 sectors with allocations of round 2-3%. They would seem to be logical choices to pick. U and B were on your list, but you had C as a candidate instead of RE. So if I decided to not trade those sectors and put the allocation into tech, here is what I saw for 2021 and 2022.There was a slight improvement for 2021 but 2022 performance was hurt more.

 
                           2021       2022 
 trade all sectors        30.9%      15.0%  
 put B RE U into K        31.0%      13.7% 
 SPY                      28.7%     -18.2%

So I wanted to know what caused the underperformance in 2022. I looked at the Sector trading yields for 2021 and 2022 for the 4 involved sectors. It problem was clear, the 3 sectors that were eliminated yielded 27.8% as an avg vs K of 3.7%. The conclusion that I came to in the first section seems to hold up here also, trade all the sectors.

 
      2021    2022 
 B    40.9%   18.3% 
 RE   36.4%   17.8% 
 U    27.8%   26.7% 
 Avg  35.0%   27.8% 
  
 K     37.5%   3.7%  

I also had the thought of maybe just trading the subsectors of XLK, but tech does go through bad times and this would surely cause low performance compared to SPY. Discarded the idea.

So how else could I boost the yield and not be too aggressive. The sectors that were going to have a good 1Q were all bought by Jan 11th. I traded a couple of sectors around, but basically I was long 8-9 sectors during most of the quarter and my investment only ranged between 93% and 99%. This is in my account that would be at 120% if all the sectors were long. It has actually bothered me a lot that I was not at least 100% invested during what turned out to be a great quarter. Since I am trading TQQQ in place of XLK, I can easily go to 150% investment without running out of cash. I am trading my IRA account at 110%.

So 1Q was a blow out with SPY gaining 9.0% and QQQ 17.1%. Had I been fully invested at 120%, I don't think I would have been uncomfortable because the market was doing so well. So my final thought for the day is to continue trading all the sectors and take my leverage up by maybe 10%. If that feels okay, then maybe later this year step it up again.

The best performing sectors are tech and healthcare, and they also have the two highest allocations. V has never had a buy during 1st Q and is not even close to one now. If healthcare was doing as well as most of the other sectors, I don't think I would be comfortable with a higher leveraged portfolio.