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Thursday, July 06, 2006

Where in the cycle?



Sam Stovall's sector rotation model helps us identify where we are in the stock market cycle by identifying the sectors that historically outperform in certain stages of the economic cycle. Using stockcharts.com's SPDR Perfcharts, we can see which sectors are outperforming the past 65 days. We see that the outperforming sectors are Energy, Utilities and Consumer Staples. Based on the sector rotation model, we are in early recession. But have no fear, we personally don't think we are going into one. We think we are going into a soft landing, to be explained in a future post. But it does mean we have seen the peaks so don't expect new highs. We also think we've seen the lows and it's probably going to be a sideways market. This tool however is very useful for a top-down approach to investing. Take note the strongest stocks are in the strongest sectors!

TERENCE

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