Sector Selections for week starting 6/5/2011

[Timothy Clontz]

If the Robot is long, long XLU.
If the Robot is short, short XLE.

The defensive (bearish) sectors continue to lead the bullish sectors by a small margin. Still in "correction" levels.

[Timothy Clontz]

If the Robot is long, long XLU.
If the Robot is short, short XLF.

[Timothy Clontz]

In accordance with the Robot, in one account I am going long IWM at the settings given.

In a second account I am going long XLU at yesterday's closing price.

Finally -- initiating a trade in real time with the Robot. As long as the current trade is in effect I will not change the long settings.

Good luck everyone.

Whenever the Robot cancels the long order I'll post a comparison of the percentage gains in each trade.

[adam ali]

Hi Tim,

It's interesting your studies indicate to go long utilities. One would thing a less defensive sector would be chosen when the Robot is long. Any thoughts (other than the model says so) for why you think this is the sector ETF chosen by your model?

[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

[Timothy Clontz]

As per the Robot, I opened a long position in IWM at 78.39.
As per my Sector Model, I opened a long position in XLU at 33.09 (slight benefit from the gap down this morning).

Currently the XLU trade is positive. I'll measure the totals when both trades are exited, and will keep a running tally of the percentage performance between the two models.

Tim

[Pascal]

As per the Robot, I opened a long position in IWM at 78.39.
As per my Sector Model, I opened a long position in XLU at 33.09 (slight benefit from the gap down this morning).

Currently the XLU trade is positive. I'll measure the totals when both trades are exited, and will keep a running tally of the percentage performance between the two models.

Tim

Without making a long analysis, I'd say that if the long trade fails, XLU will outperform IWM because it is more defensive. If the trade is a success, then IWM will outperform XLU.

Of course, selecting another ETF than XLU would lead to different results. So here, it is the long term comparison that is important.


Pascal

[Timothy Clontz]

The XLU selection is based on the long term bearishness of the sector configurations, in relation to each other. That is, money flow and price performance on bearish sectors are outperforming those of bullish ones.

My expectation is that XLU would underperform a successful IWM rally, while an XLE short would outperform an IWM short simply because of the likelihood that the primary trend is now bearish.

However, if the primary trend actually IS bearish, that increases the odds of successful Robot shorts and decreases the odds of successful Robot longs. While for the Robot that will be a wash, I do not yet know if this would be a wash with my own model.

By "wash" I do not mean that the Robot would be unprofitable, but merely that the decreased success of contra trend trades is compensated by the increased success of trades WITH the prevailing trend, allowing the Robot to remain profitable over all, regardless of that trend.

My real time trades are meant to compare apples to apples in real time to see if the Robot calls and my model have positive synergy.

If they DO, then the next step would be to see if pivot points calculated on my selected sectors would outperform both.

But that's a good bit in the future. This is the first real time trade using Billy's timing with my sector model. I had missed the previous short because I was still backtesting my own model at that time.