Passive index investing is not the way to go in today’s markets. The long-term risks associated with buy-and-hold investments are too great. And short-term trend changes only work to benefit investors willing to stay nimble, jumping in and out of the market’s strongest sectors.
This was something my Cycle 9 Alert subscribers learned well this year. Since inception, my recommendations have produced 82% winners (23 out of 28), with each trade generating an average profit of 50%.
So how did we do it? Let’s take a look at the year, quarter by quarter…
All nine sectors of the market – consumer discretionary, health care, financials, industrials, energy, technology, consumer staples, materials, and utilities – finished the year higher, although we saw a meaningful spread of 31% between the market’s strongest sector (Consumer Discretionary, +40%) and weakest sector (Utilities, +9%).
Here’s a spaghetti chart showing percentage returns on all nine sectors, and SPY, in 2013.
Yet beating the market’s average return required some tactical moves – jumping into particular sectors as they heated up, then jumping out as their performance cooled.
That’s the essence of Cycle 9 Alert. We buy stocks in the strongest sectors, hold for two to three months (as the sector outperforms the broad market), then we harvest gains and reinvest our profits in other, newly strengthening sectors.
To show you how this worked for us, here’s a breakdown of the year’s key sector trends, quarter by quarter.
First Quarter: January to March
The health care (XLV) and consumer staples (XLP) sectors outperformed the market through April 1, gaining 16% and 14% respectively, while SPY gained 10%.
Cycle 9’ers took advantage of the strength in health care stocks by locking in a 58% gain on Parexel Intl. (NYSE: PRXL), a clinical trials specialist, at the beginning of March.
Meanwhile, Kroger (NYSE: KR) benefitted from the consumer staples sector’s outperformance in Q1, allowing Cycle 9’ers to lock in a 113% profit during the quarter.
Industrial stocks started the year strong, holding the #3 spot on my Leaders & Laggards Board at the end of January, but then cooled off by April. Fortunately, I recommended locking in profits of 140% on Titan Machinery (NYSE: TITN) in February, as my research picked up on a sudden drop in the sector’s momentum.
Second Quarter: April to June)
Talk of the Fed’s plans to taper began in May, sending interest rates higher and spurring significant changes in sector trends.
Most notable was the utilities sector, which was hit hard by the rise in rates. Through April, utilities stocks were ranked #2 on my Leaders & Laggards Board, nearly tied with health care stocks. One short month later, the utilities sector was tied with the materials sector for LAST place.
Interestingly, utility stocks – which are notoriously sensitive to changing interest rates – anticipated the rate change, peaking about one month before interest rates spiked.
On April 23, I told Cycle 9’ers to exit a utility stock – Aqua America (NYSE: WTR) – which I’d recommended two months earlier, as my research showed the whole sector was turning down. We locked in a gain of 50%… just in time to sidestep the crash in utilities stocks, which never recovered and finished the year up just 9%.
The health care sector retained its stronghold on the #1 spot and Cycle 9’ers had the opportunity to lock in gains of 84% and 124% on Merck (NYSE: MRK) during the quarter.
Meanwhile, financial stocks (XLF) surged from middle-of-the-pack to #3 during Q2. This boost in momentum led me to recommend an investment in the Royal Bank of Canada (NYSE: RY).
Third Quarter: July to September
Financial stocks stayed strong through the third quarter, allowing Cycle 9’ers to lock in gains of 49% and 69% on FactSet Research Systems (NYSE: FDS) and Royal Bank of Canada (NYSE: RY), respectively.
Meanwhile, the industrial sector surged higher in Q3, ending the quarter in third place after merely matching the S&P 500’s return at mid-year. I had begun picking up on the sector’s strengthening momentum at the beginning of July. Two weeks later, Rockwell Automation (NYSE: ROK) was gaining steam and I recommended a long play on this industrial leader on July 18. Cycle 9’ers who chose to ride this sector trend locked in profits of 108% and 197% by the end of the quarter.
Fourth Quarter: October to December
A trend change in the materials sector (XLB) was the most noteworthy shift in Q4. After starting October up just 10%, a late-year surge boosted the commodities sector, which will end the year up about 23%.
Yet, not every commodity within the materials sector was treated equally. In fact, a significant divergence between steel stocks (which strengthened) and copper stocks (which weakened) gave Cycle 9’ers the opportunity to make good money during the shakeup.
Cycle 9’ers took advantage of this commodity shakeup, making money by betting on the continued strength of steel stocks… and the continued weakness of copper stocks.
On September 10, I recommended a bullish position on U.S. Steel (NYSE: X).
Then, on September 24, I recommended a bearish position on Southern Copper Corp. (NYSE: SCCO).
A few short months later – as the steel-to-copper ratio continue to climb – Cycle 9’ers made gains of 38% and 82% on Southern Copper, as the copper stock slid lower, and also netted profits of 108% and 200% on U.S. Steel, as the steelmaker’s stock shot higher.
Become a Cycle 9’er in 2014
‘Tis the time for New Year’s resolutions…
If you’re resolved to beating the market in 2014… consider the impact of short-term, sector-specific trends on your portfolio’s bottom line. Join us at Cycle 9 Alert. Click here to get started.
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If “buy-and-hold” and the notion that you can’t beat the market have left you short of your personal and retirement goals, then you’re going to want to hear the truth about passive and active investing.
Chances are, if you’re more than 25 years old, you think it’s impossible to “beat the market!”
But today, there is MORE than ample evidence that proves:
- The stock market is NOT perfectly efficient
- Passive investing can be MORE risky than active investing
You CAN beat the market… you just need to use the right strategy!