Sector Rotation Investing Strategy for Beating the Recession

Sector rotation is a proven strategy to beat the market. When the current economic recession ends marking the beginning of a new bull market, it will be time to enjoy benefits of a properly positioned portfolio. An analysis of the affect of the recession on each industry in the sector rotation model will create opportunities for investors.
Stovall Sector Rotation Model
Sam Stovall of Standard & Poor’s describes a sector rotation model that assumes the economy follows a well-defined economic cycle as defined by the National Bureau of Economic Research (NBER). His theory asserts that different industry sectors perform better at various stages of the business cycle. The nine Standard & Poor’s industry sectors are matched to each stage of the economic cycle. Each industry sector follows their cycle as dictated by the stage of the economy. Investors should buy into the next sector that is about to experience a move up. When an industry sector reaches the peak of their move as defined the business cycle, they should start to sell the sector. Using the sector rotation model, an investor may be invested in several different sectors at the same time as they rotate from one sector to another as dictated by the stage of the business cycle.

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Crude Oil Analysis

The weekly chart of oil is shown below, with the lower 34 and 55 MA Bollinger bands at extremely oversold conditions (which are starting to rise since the last update), indicating how severe the recent decline was. Although the lows for oil have been put in place, it could take 2-3 years to consolidate the price of oil below $100/barrel before any higher prices occur…this is going to take some time. The upper and lower 21 MA BB’s are quickly approaching the price of oil, thereby creating a potentially narrow trading range between them…this will cause a breakout to the upside or downside (likely to the upside based upon full stochastics). Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2. Based upon the sharp trajectory of the %K in stochastic 1, it appears oil has an opportunity to have continuous support in the pricing mechanism until sometime between July and October 2009. The weekly chart indicates an extremely oversold condition not seen in severity at all for the data presented below. Based upon this, oil could potentially climb to $60-70/barrel later this summer if the pricing mechanism is not manipulated and follows the trajectory path laid out with full stochastics. I will update the Horizon Beta funds later on tonight to review opportunities based upon observations presented (the HOU.TO has remained a speculative buy for the past few months).

Powerful Cyclical Bull Market Within a Secular Bear Market

The Ostrich Investors - The withering barrage of misfortune that investors have suffered defies belief. Last year’s horrific 38.5% loss in the stock markets was one of the worst ever witnessed. And this year has offered little respite, with stocks down another 5.7% so far. Such a catastrophic loss of wealth has naturally sparked rampant bearishness, pessimism, and a pervading sense of despair. Add in fears of bankruptcies, smothering tax increases, and even a new depression driven by slower consumer spending, and it is easy to understand why countless investors have simply thrown up their hands in disgust. Capitulation, surrendering to this situation, seems to be the only viable strategy left for countless shell-shocked investors. They cannot bear to even think about investing anymore.

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Stock Markets Rising a Wall of Worry or Slope of Hope?

Banks given a lot of slack to report better earnings. Citigroup Inc., the U.S. bank rescued by $45 billion in U.S. taxpayer funds, ended a five- quarter losing streak with a $1.6 billion profit on trading gains and an accounting benefit for companies in distress. Citigroup posted a $2.5 billion gain from accounting rules that allow companies to profit when their own creditworthiness declines. The rules reflect the possibility that a company could buy back its own liabilities at a discount, which under traditional accounting methods would result in a profit.

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Investors Don’t Ignore The World’s No. 2 Stock Market India

By: Uncommon_Wisdom

Tony Sagami writes: This should be easy for many of you. Name the two fastest-growing economies in the world.First of all, we know who they are not. They’re not any countries in North America or Europe because both of those continents are mired in painful recessions.Second, if you’ve been a regular reader of this column, you’ve heard me beat the drum about China’s continued strength and its globe-leading growth.
the most recent statistics showed that China’s economy is growing at a 6.5 percent annualized rate. Could you imagine the cartwheels that Fed Chairman Bernanke and
President Obama would be turning if the United States were growing at that pace?

So … who is No. 2?
India.
India isn’t growing quite as fast as China, but it’s pretty darned good. The Asian Development Bank expects the Indian economy to grow by 5 percent in 2009 while the World Bank is looking for 4 percent growth.Goldman Sachs, which has been pretty accurate about India, expects India to grow by 5.2 percent in 2009 and accelerate to more than 7 percent in 2010.The Sensex has risen 32 percent in the last month, making it the second-best performing stock market in the world.The Sensex has risen 32 percent in the last month, making it the second-best performing stock market in the world.That positive economic growth has translated into stock market profits. The Bombay Stock Exchange Sensitive Index (also known as the Sensex) has risen 32 percent in the last month, making it the No. 2 performing stock market in the top 25 markets.

In case you’re curious, the Italian stock market was No. 1.

India is a market that you definitely want to pay attention to because when times are good, the Indian stock market explodes.In October 2002, the Sensex was sitting at 2,834 points, but by January 2008, it had zoomed to 21,206. That’s a 648 percent return in less than six years.And despite its recent rally, the Bombay Sensex is valued at only 11 times trailing earnings. To put that into perspective, the MSCI Asia-Pacific (all Asia) Index is trading at 18 times earnings.Despite our U.S. recession, the Indian traffic lights look like they are all about to turn green.I’ve talked a lot about the $1.9 trillion of foreign reserves that China has sitting in the bank. Well … India has a mountain of cash sitting in its piggy bank, too. India has $255 billion of cash.

Foreign Investors Are Pouring Money Back Into The Indian Markets
Foreign institutional investors are pouring money back into India. After pulling out $13.1 billion in 2008 and another $1.7 billion in the first two months of this year, big foreign institutional investors have dumped about $1 billion in Indian stocks over the past month.The latest numbers show that the inflation rate in India fell to a three-decade low of 0.26 percent. Yup, darn near a zero percent inflation rate.
The reason that is so important is that falling inflation gives India’s central bank the flexibility to cut interest rates even though the Reserve Bank of India has already cut its key repurchase rate five times since early October and is now sitting at 5 percent.The Indian stock market isn’t a tiny, little, backwater exchange either. It is the largest stock market in the world by sheer number of listed firms. The 133-year old Bombay Stock Exchange has 4,700 stocks and the smaller National Stock Exchange has 1,580 companies.

And you don’t have to open a brokerage account in India to invest in Indian stock. Like China and Japan, India has several companies listed on the New York Stock Exchange and the Nasdaq, such as Infosys (INFY), HDFC Bank (HDB), ICICI Bank (IBN), Patni Computer Systems (PTI), Tata Motors (TTM), and Wipro (WIT) to name a few.If you’re more of an exchange-traded fund (ETF) investor, you could take a look at WisdomTree India Earnings (EPI) or PowerShares India (PIN).

Now, don’t rush out and buy any of those above securities without doing your homework, and as always, timing is everything when it comes to investing. Frankly, I think all of them will get cheaper if you’re patient.India, however, is a market that you shouldn’t ignore. As I said, India is still growing very strongly, and I expect its stock market will be one of the best places to park your money in the next 5-10 years.

Best Wishes,
Tony

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