Intermarket Analysis & Business Cycle Investing

David Calloway Has Had Over 200 Followers Rank: 12 Followers: 205 Votes: 25 Years Member: 4 Last Update: 20 May 2016, 20:32 Categories: ETFs
Sector / Industry Analysis
Relative Performance Charts

This chart list attempts to identify the current phase of the business cycle by comparing the relative performance of ETFs representing defined sectors of the economy to the S&P 500. Once the Business Cycle Phase has been determined, various ETFs are identified that might be expected to out-perform in the current cycle. Rotating your stock portfolio from sector to sector based on business cycle principals is one way to improve performance.

The charts are arranged in the following order, generally following the sectors monitored by this ChartList:

. . . 000 Series: Chart of the day - I occasionally highlight one or more charts from other sections of the list.
. . . 100 Series: General Overview/Background charts
. . . 200 Series: Utilities
. . . 250 Series: Financials and Home Builders
. . . 300 Series : Telecommunications
. . . 350 Series: Consumer Staples (Nondurables, NonCyclicals)
. . . 400 Series: Transportation
. . . 450 Series: Consumer Discretionary (Durables)
. . . 500 Series: Health Care
. . . 550 Series: Technology
. . . 600 Series: Industrials
. . . 650 Series: Materials
. . . 700 Series: Energy.

The business cycle is broken into the following 6 phases, as described by Martin Pring in 'The Investor's Guide to Active Asset Allocation':

. . . Stage 1: Slowing growth rates or early recession. Interest rates start to fall and bonds rally.
. . . Stage 2: Business cycle trough. Stocks begin to rally.
. . . Stage 3: Late recession and early recovery. Commodities begin to rally.
. . . Stage 4: Early recovery. Interest rates trough and bonds peak.
. . . Stage 5: Cycle peak. Stocks peak.
. . . Stage 6: Slowing growth, commodities peak.

On occasion, I highlight individual stocks in a sector. Generally, these will be stocks that Investor's Business Daily has ranked in the top-50 stocks (at least, recently, if not in the current list). IBD's rankings are based on Earnings per Share (EPS) stability/growth and Relative Strength (RS).


100: Evidence for Current Phase of the Business Cycle

Note: Overall, the indicators imply we are most likely in late Stage 4 or early Stage 5 of the current business cycle -- heading toward a business cycle peak and stock market peak) .

If this is correct, the Healthcare and Materials sectors may be the best sectors for investment at this time. In the normal course of events, though, Stage 6 is a difficult one for stocks in general, and Materials sector stocks in particular. Healthcare eeks out a small gain in Stage 6 (the only sector to do so), so if any stock investments are made at this time, Healthcare may offer the least risk of any sector.

101. Long Term/Secular Trend: SPY EMA100-EMA200 Crossovers

SPY Long Term Trend - To provide an overview of where we've been and where we are.

102: Monthly S&P 500

103: Current Business Cycle Stage

103: Long Term S&P Trend

104: What Happens to Various Sectors in Particular Phases of the Business Cycle?

105: Discretionaris vs. Staples

107: Financials Vs Utilities

107: Materials vs Financials

110: Volatility Index - New Methodology ($VIX)

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