7/23/2018 The Whipsaw Continues

I skipped the Sector Trade from XLP to XLI because of the three day holding period between trades in my account.

That said, the call is back to XLP, so I will continue to stay in XLP.

7/19/2018 Sector Whipsaw

The Sector Model has changed its call from XLP to XLI.  Since it is less than the 3 day window in my account I'll be staying in XLP.

7/18/2018 Sector Trade

The Sector Model sold XLI and bought XLP with a 1.15% favorable gap.

7/17/2018 Potential Sector Trade

Unless there is an unfavorable gap, the Sector Model will sell XLI and buy XLP tomorrow.

**a gap is between the sell and the buy.  In a positive gap the sell is up relative to the buy.  So if XLI is down 2% but XLP down 3% that is a 1% favorable gap.

7/15/2018 The Market is Waterlogged

Sector Model	XLI	-0.08%
Full Model	Date	Return	Days
BT	8/11/2015	-54.10%	1069
TMK	11/23/2015	41.28%	965
NVR	12/16/2015	87.06%	942
CMP	2/19/2016	5.42%	877
NVR	2/22/2016	94.94%	874
AMWD	3/17/2016	34.16%	850
CASY	5/12/2016	-2.70%	794
AEM	6/7/2016	-7.76%	768
ESRX	6/13/2016	7.34%	762
AMED	6/16/2016	86.56%	759
FRO	6/27/2016	-25.88%	748
ASTE	7/12/2016	6.01%	733
MFC	9/1/2016	41.55%	682
SFM	9/8/2016	13.26%	675
CFFN	9/12/2016	2.40%	671
FOSL	5/11/2017	76.66%	430
HIBB	7/25/2017	78.24%	355
FOSL	7/27/2017	131.07%	353
HZO	8/1/2017	39.73%	348
BCE	5/31/2018	8.05%	45
(Since 5/31/2011)
S&P	Annualized	10.82%
Sector Model	Annualized	13.49%
Full Model	Annualized	15.68%
S&P	Total	107.84%
Sector Model	Total	146.37%
Full Model	Total	182.23%
Sector Model	Advantage	2.68%
Full Model	Advantage	4.86%
	Previous	2018
S&P	98.38%	4.77%
Sector Model	172.95%	-2.39%
Full Model	145.63%	14.90%

Lots of motion sickness in the market.  Given the five year holding period for each stock on the model, so far it’s mostly noise.

The industries in the buy-zone, however, tell a bleak picture:

ADVERT

ENGCON

FUNL SVC

FURNITUR

GROCERY

HLTHSYS

NWSPAPER

REINSUR

TELEQUIP

TELUTIL

WATER

Nothing exciting?  It gets worse: the most interesting stock I would buy today (if I were due for a rotation), is AWK, American Water Works.

When the best stock in the universe appears to be a water company, we aren’t looking at good times ahead.

Tim

7/10/2018 Sector Trade

The Sector Model sold XLP and bought XLI at the open.

7/5/2018 Probable Sector Trade Tomorrow

Unless there's a negative gap, the Sector Model is calling to sell XLI and buy XLP.

A negative gap would be XLI down relative to XLP.  If that happens I'll wait until the gap closes.

7/1/2018 Corrections create opportunities

Sector Model	XLI	-1.54%
Full Model	Date	Return	Days
BT	8/11/2015	-55.09%	1055
TMK	11/23/2015	37.59%	951
NVR	12/16/2015	79.08%	928
CMP	2/19/2016	4.63%	863
NVR	2/22/2016	86.62%	860
AMWD	3/17/2016	33.94%	836
CASY	5/12/2016	-6.34%	780
AEM	6/7/2016	-7.13%	754
ESRX	6/13/2016	1.71%	748
AMED	6/16/2016	69.63%	745
FRO	6/27/2016	-17.70%	734
ASTE	7/12/2016	3.10%	719
MFC	9/1/2016	41.40%	668
SFM	9/8/2016	12.14%	661
CFFN	9/12/2016	4.22%	657
FOSL	5/11/2017	86.08%	416
HIBB	7/25/2017	74.81%	341
FOSL	7/27/2017	143.39%	339
HZO	8/1/2017	27.61%	334
BCE	5/31/2018	3.76%	31
(Since 5/31/2011)
S&P	Annualized	10.41%
Sector Model	Annualized	13.65%
Full Model	Annualized	15.45%
S&P	Total	101.67%
Sector Model	Total	147.64%
Full Model	Total	176.76%
Sector Model	Advantage	3.25%
Full Model	Advantage	5.04%
	Previous	2018
S&P	98.38%	1.66%
Sector Model	172.95%	-1.89%
Full Model	145.63%	12.68%

The Full Model took a huge hit, falling from 19% up for the year to less than 13%.  It’s heavily invested in retail stocks, and the Sector Model is heavily invested in Industrials.  One WOULD think from the selections that the economy should be in a bullish phase, but it’s important to note the nature of the model: mean reversion instead of momentum.

In a momentum based model, the current trends are being followed.  In a mean reversion model, the previous trends are analyzed to see which trend is most likely to exhaust itself and reverse.

Although the model is normally better than a passive index stock, a true correction can still cause temporary losses.  In fact, the most bearish sector on the model is XLI, and I always grit my teeth when I see it show up.  I even tried to find ways to short the market when that sector showed up, but shorting is ultimately a losing proposition.

The general market does not like chaos, but chaos creates opportunities for selective (i.e. value) investing.  The strategy isn’t to avoid loss, but to gain more after a correction than is lost by the correction.

Tim