SMI Visitor's Weblog

Welcome to the SMI Visitor's Weblog. Below you'll find selected excerpts reprinted from our Member's Weblog, plus occasional posts created especially for our visitors.

If you are already an SMI Web Member, click the following link to go to the SMI Member's Weblog. If you're not a Web Member yet, but would like to have access to all of SMI's content — including the SMI Member's Weblog — click to learn about becoming an SMI Web Member.

Current Sector Rotation fund up 10% in three months

SMI's Sector Rotation strategy is a high-risk, high-reward approach to investing in sector funds (funds that are focused on narrow slices of the overall market). Many SMI web members allocate a small portion of their overall portfolio, often 5%-15%, to Sector Rotation in pursuit of the high returns it has provided over time.

Our current Sector Rotation recommendation has been held three months now, and is sporting a 10.0% return over that span. Our last holding was held four months and gained 19.3% over that period. Over the past 19 years (1990-2008), Sector Rotation has averaged gains of 24.2% per year.

To learn the identity of our currently recommended fund, as well as all the details of SMI's Sector Rotation strategy, become a Web Member today!

New Sector Rotation fund gains 9.5% in first month

Last month, we replaced the current holding in SMI's Sector Rotation strategy after it had gained 19.3% over the four months it was held. Keeping that hot streak intact, the new fund raced out to a 9.5% gain in September!

To learn the identity of this recommended fund, as well as all the details of SMI's Sector Rotation strategy, which has averaged gains of 24.2% per year over the past 19 years (1990-2008), become a Web Member today!

SMI makes new sector recommendation after 19.3% gain

We're making a change today within one of SMI's most successful Advanced Strategies. The current holding in our Sector Rotation strategy has done well for us over the four months we've owned it, gaining a total of 19.3%. But over the past month, the fund has slipped a little, at a time when some other sectors have continued to advance rapidly. As a result, the fund has fallen below the quartile and is being replaced this month.

To learn all the details of SMI's Sector Rotation strategy, which has averaged gains of 24.2% per year over the past 19 years (1990-2008), as well as to learn what today's new fund recommendation is, become a Web Member today!

Sector Rotation update

There is no change to our Sector Rotation recommendation this month.

Our current recommendation has done very well for us in the three months we've owned it, gaining 20.1%. That's considerably better than the 13.4% gain of the Wilshire 5000 ("the market") since we bought the fund on May 1.

To learn about the Sector Rotation strategy and its incredible track record, become an SMI web member today!

Enhanced Just-the-Basics update

We have updated the recommendations on the official Enhanced JtB page.

Enhanced Just-the-Basics takes the best elements of our indexing and Upgrading strategies and blends them together. Its quarterly update schedule is perfect for those who want to be a little more active than pure indexers, but don't want to keep up with potentially making changes every month, as Upgrading requires.

To learn more about Enhanced Just-the-Basics and get the current fund recommendations, become a web member today!

Sector Rotation update

There is no change to our Sector Rotation recommendation this month.

Our current SR fund has done very well for us in the first two months we've owned it, gaining 10.7%. That's roughly double the 5.2% gain of the Wilshire 5000 ('the market") since we bought the fund on May 1.

Want to see which Sector Rotation fund SMI is currently recommending? Become a Web Member today!

Market update

Over the past several months, we've written about a lot of trends in the economy and government that concern us. Some readers have expressed frustration with us for reporting on so many "negative" news stories and trends.

At the same time, we've consistently maintained that the market would turn around before the news got better. While we've conceded that some readers clearly needed to examine their risk tolerance and perhaps make adjustments in light of the steep bear market, for the most part we've encouraged SMI readers to stick with their plan and ride this thing out.

Many readers haven't liked this advice (to put it mildly). Some have left, in search of systems or seers that will move them in and out of the market in an effort to avoid the next bear market whenever it arrives. Market-timing never looks better than at the end of a bear market. On the flip-side, buy-and-hold investing never looks worse.

Then the market goes and rallies 40% in three months.

As difficult as it is to still be down as far as we are from the highs of 18 months ago, I can't even begin to imagine how it would feel to have sold at the March lows. And yet, logic tells us there are many people in exactly that boat, given the huge volume of selling around that market low.

Timing the market is an incredibly difficult thing to do. Which brings me as close to the topic as SMI ever gets.

As many of you know, SMI offers two very basic, very "big-picture" technical indicators for those inclined to add a dose of timing to their long-term investment plans. Our bear alert indicator gave a sell signal way back in January of 2008. (I think all of us wish we could go back and give that signal a much higher weight in our investment plans than we did then!)

The other signal that SMI offers is our "All Clear" indicator. This is a very-slow moving indicator. It isn't designed to catch the market bottom. It was purposely designed to be slow, because we were perfectly willing to give up the early part of a new bull market to try to make extra sure it didn't signal too early, before a bear market was actually over.

Guess what is getting close to triggering?

It's not there yet. But with yesterday's huge rally taking the S&P 500 index above its 200-day moving average, one significant obstacle to it sounding has been removed. The all-clear indicator relies on weekly closes (meaning the price at the end of the day each Friday). It would take a monster rally in the next few days for the moving averages to trigger the all-clear this week.

But all it would take for it to trigger next Friday is for the market to stay at or above the level where it currently sits right now.

Given that fact, it isn't particularly surprising to read that the top market-timing newsletter of the past 30 years (you knew I'd circle back to tie that in, didn't you?) switched to an aggressively bullish stance at the end of the day yesterday. Here's a brief rationale from the author's May 21 issue:

"During the early stages of bull markets, many investors will remain on the sidelines. They have a preconceived idea of where the market will go and will cite any number of economic concerns, as well as the warnings of CNBC pundits, to support their bearish case. Don't get us wrong; they might be right, but if history is any guide, the great majority of investors who were badly mauled during the bear market will not commit even a portion of their capital until it is much too late."

The economy is far from out of the woods. The news from Washington is troubling. The long-term outlook for inflation, interest rates, and our national debt all seem negative. But we've warned you for many months all that would still likely be the case when the market bottomed and the next bull market began.

Granted, we have no assurances the bottom is in. There are no guarantees when you invest in the stock market. We don't even have our all-clear signal yet. But the landscape has been shifting for several weeks now. Each level of gains has boosted the probability that the worst is over.

I thought it would be good to let everyone know the all-clear is getting closer than most probably would have guessed. Not that it's infallible. But for many readers, that's the signal they've waited for to re-engage with this market, and I'm guessing that most of those readers probably thought they'd have a little more time to get comfortable with the idea. It's never easy to recommit to the market after it's caused you so much pain. And, as the quote above alludes to, that's exactly why markets can bottom and run so far, so fast while the news is still bad.

It's time to start thinking through what your response will be if we do, in fact, get an all-clear signal 10 days from now.

Sector Rotation update

Mark is exercising his civic duty in court today — jury duty that is. But a quick word to let you know that we're making no changes in the Sector Rotation strategy. Both recommendations made last month are holding strong in the top quartile this month, so no changes are needed. Mark will post the file when he's back in the office later this week.

Sector Rotation Change

As we've noted the past few months, our current Sector Rotation recommendation has been holding roughly half of its assets in cash. That worked wonderfully when the market was falling like a rock, but has kept it from participating much in the rally the past several weeks. Altogether, it worked out quite well for SR investors, as the fund lost only 10.5% since it was recommended last October. That's less than half the -22.9% loss of the Wilshire 5000 during that time (and this from a strategy that is typically much more aggressive than the market).

Despite our gratitude for this recommended fund protecting our capital during the worst of the market decline, the fund has now fallen out of the top quartile, so it's time to move to a replacement.

Want to see what the Sector Rotation fund recommendation is? Become a Web Member today!

Sector Rotation update

As we've discussed the past few months, our current SR holding has nearly half its assets in cash. That has helped keep it near the top of the rankings during the market decline the past six months. The fund fell down the rankings some during March as stocks rallied, but not so much that it fell out of the top quartile. So we'll hold it another month.

Sector Rotation update

By mid-February, our current SR recommendation looked like it was heading for the exit. Then came the roughly 12% slide in the S&P 500 over the last two weeks.

As I noted last month, our recommended SR fund started 2009 with over half of its assets in cash. Normally, we wouldn't particularly care for a fund like that, but it has obviously helped limit our losses in this downturn. Its 6-month losses are less than half that of most of the other SR funds in the database (we've owned the fund for 5 months now).

That defensive posture paid off again over the past two weeks, shooting the fund back up to the #2 spot in the month-end SR rankings. So we'll be holding onto it for March.

Sector Rotation update

While our current Sector Rotation holding had a rather poor month of January (losing 9.7%), it remains within the top quartile, so it will continue to be held for February.

It's worth noting that this fund's cash allocation has now risen to over half of the fund's assets (as of 12/31/08). That's not all bad in a falling market, but comes as a bit of a surprise, perhaps, to those who understandably expect that their money is invested in small-cap financial stocks.

Given this cash buildup, and the fact that the fund slipped from the top of the rankings to the middle of the top quartile this past month, if I were a new investor contemplating buying into SR for the first time, I'd likely wait to do so until a new recommendation was offered (or until the current fund climbs back up the rankings a bit). Note carefully, this doesn't mean I'd sell an existing position in the fund. This is simply for new entrants to the SR strategy who are wondering if they should buy the current recommendation or wait for a new one (a common question). In this particular case, I'd be inclined to wait a month and see what the March rankings look like.

Sector Rotation rankings

Sector Rotation is an advanced high-risk, high-reward strategy. It's important that you not launch a Sector Rotation strategy without carefully studying the explanatory article which lays out the pros and cons.

The preliminary monthly rankings for Sector Rotation are published for SMI web members on the first business day of each month.

Update: The historical performance file has been updated through 2008 (membership required). For the 1990-2008 period, the theoretical average annual return was 24.2%. That includes the super-profitable dot.com bubble trade in Amerindo Technology which is unlikely to recur; excluding that period, the strategy still returned 18.2% annually.

As the file shows, however, the returns have been very volatile. The returns for the most recent five years, for example, were +12.6%, +46.1%, -1.9%, +28.1%, and -31.5% respectively. It may be profitable, but it's not for the faint of heart.

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