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I know how people feel about "timing the market," however if my goal is to remain in the market but be properly diversified/positioned for future market movement, I'd still prefer to have a reason behind my allocations rather than rebalancing a pre-ordained mix.

There was a lot of discussion recently about sector rotation after some stocks/sectors dropped for seemingly no reason and it appeared one theory was that they dropped due to profit-taking and/or sector rotation. Those sinking sectors rose again after a brief break, so I think the consensus was right. It made me look further.

I've tried my hand at some technical analysis to see if movement in different sectors can predict where money may be flowing in the future 3/6/9/12 months. Disclaimer: I'm no expert in technical analysis, but simply created some variables based on ratios of different time-frame moving averages and year-over-year numbers.

I've used the following website for values in the various sectors: http://ift.tt/2CrdufY

Please let me know of a better source if you know one. I'd like something that reaches further back than 1994/1998, but these look to be the indices that some sector-based ETFs follow.

Real estate was ignored because it only gave data since 2007 and thus halved my number of observations.

The theory was, if you can see how these sectors have performed in the past relative to each other, you may be able to better prepare for money moving into other sectors over the next year.

The results showed that the best sectors going forward (3M/6M/9M/12M, ignoring real estate) would be financials, discretionary spending, and information technology.

A brief look at where these 3 typically fall in a business cycle shows that the outlook is very similar to that of the beginning stages of a bull market.

The returns I see in these sectors aren't great, but I'm wondering if that may just be a result of an unusual year of low, steady returns over the last year+ with very little volatility that has not been observed before in the data.

The other sectors show much worse numbers than the others. I could see this in two different ways:

1.) As mentioned above, these sectors may be the best moving forward and indicative of a long-lasting bull market (beyond the 8+ years we've already seen) 2.) These are the best of a bunch of underperforming sectors moving forward, and we could be in for a world of pain.

I'm looking forward to doing some analysis on the overall economy going forward that may give some insight into which way to interpret this data. But I'm curious, what do you make of this? Are we really in for a whole lot more fun in 2018 or could the underlying fundamentals that this entire analysis ignores cause us a lot of trouble?



Submitted December 17, 2017 at 12:42PM by DART_MEET_WALL http://ift.tt/2Bpfg1y

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