Sector Selections for week starting 6/5/2011

[Timothy Clontz]

Short answer is, I don't know yet.

I know that my model works, and I know that the Robot works.

I do not yet know how well they work together.

My guess is that when the Robot goes with the long term trend, my model should add synergy. Right now the short selection would have been XLE had the Robot been short, and I believe based on my other models that we are very likely entering a bear market.

But counter trend trades with the Robot I do not yet know. I'm testing in real time with my own money to see how well they work together.

My model actually works on NON-effective volume. That is, when money flow and prices diverge in the sectors, I measure the greatest positive and negative divergences. XLE has the greatest negative divergence, and XLU has the greatest positive divergence. Even though XLU has outperformed in PRICE, it has outperformed even more in money flow.

That's a lot of non-effective volume sitting there waiting to snap. Once effective volume begins to turn in the direction of the trade, my own model is meant to capitalize on the pressure created by the divergence.

Pascal uses an entirely different method in his own sector selections: effective volume in sectors to work with effective volume for the broad market. I have no doubt his model works extremely well.

But the question is, which concept would have the greater synergy -- uncoiled pressure from non-effective volume once volume BECOMES effective (my concept); or effective volume with effective volume (Pascal's); or pivot points using an effective volume trigger (the Robot).

The good news is that I believe all of these approaches will work because of the effectiveness of effective volume (pun intended).

So, I'm comparing the Robot in one account with my model in another, and I'll keep a running talley in real time. We'll all know soon enough, without any form fitted backtests (which by their nature are skewed to the best possible results).

Tim