Thursday, August 18, 2016

Seasonality Will Change Your Life

Economy and Markets

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ECONOMY & MARKETS | August 18, 2016

Yes, You Really Can Beat the Market

By Adam O'Dell, CMT, Chief Investment Strategist, Dent Research

EditorThe secret to beating the market is simple: just be in the right place, at the right time.

I said simple, not easy. And if you're still clenching academic theories, born decades ago, you probably think it's impossible to time the market… more impossible still to beat the market. After all, that's what the Efficient Market Hypothesis (EMH) says.

But I'm here today to tell you that the EMH theory is wrong. And I can prove it.

Consider the chart below.

It shows the difference between Buy-and-Hold and a Strategy (Right Place, Right Time) that's based on a concept called "Seasonality," which I'll explain today.

But first, tell me… which investment strategy would you prefer to use?

See larger image

Over the last 16 years, the S&P 500 has gained a measly 50%, turning $100,000 into around $150,000. And at one point, buy-and-hold investors suffered a gut-wrenching 57% drawdown.

This is the "efficient market" you've been told "can't be beaten."

But as the green line shows, you CAN beat the market. In fact, you can earn higher returns AND take less risk… by simply being in the right place at the right time.

So what exactly does that mean… being in the "right place at the right time"?

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The concept is called "Seasonality."

I wouldn't be surprised if you've heard of Seasonality before. Plenty of stock market analysts throw the term around, even if they don't know how to harness its power.

Have you heard the saying, "Sell in May and Go Away"?

That's one of the most widely recognized sayings in the investment community. And it's based on this idea of Seasonality, which is simply the fact that stocks tend to do better (or worse) during different "seasons" of the year.

But, to me, the advice "Sell in May and Go Away" is completely useless.

For one, I'm not a passive buy-and-hold investor. I use proven systems (like Cycle 9 Alert) to actively time and trade the markets.

What's more, I don't simply "buy the market" when my indicators tell me it's a good time to be bullish. Instead, I hone in on the specific sectors that are poised to outperform the market – and then I put my money to work in those sectors.

Basically, I've found a far better way to harness the power of Seasonality… a strategy that keeps us in the right place at the right time.

When it's Hot or Not

In Cycle 9 Alert, I track the price movements of nine market sector ETFs:

  • Consumer Staples (XLP)

  • Consumer Discretionary (XLY)

  • Healthcare (XLV)

  • Technology (XLK)

  • Financials (XLF)

  • Industrials (XLI)

  • Materials (XLB)

  • Energy (XLE)

  • Utilities (XLU)

Each of these sectors has its own seasonal pattern, revealing when the sector typically outperforms the broad market, and when it underperforms.

By studying these patterns, you can place yourself in the right place, at the right time. And then you can actively time, trade and beat the market.

Now, you should know that Seasonality is just one factor I use to deliver market-beating returns to Cycle 9 Alert subscribers. And when you understand how much of a difference just Seasonality can make, you'll start to understand why my strategy is so powerful.

See, every month, there's a good deal of "moving and shaking" between sectors. And the performance difference between the seasonally strongest and weakest sector each month is meaningful, with an average spread of 4.3%.

These seasonal patterns – which are unique to each of the nine market sectors – work to inform my Cycle 9 Alert algorithm about which sectors are poised to outperform the market, making them buys… and which sectors are poised to underperform the market, making them sells.

In about an hour, Jake Hoffberg and I will be hosting a special live event.

We'll be giving live viewers even more details about this, but you must register to join us.

See you at 4 p.m. Eastern Time!

To good profits,

Adam O'Dell, CMT
Chief Investment Strategist, Dent Research

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