"Our new Dow strategy, described in the August 1996 STOCKS & COMMODITIES, is a formula system operating on the sector rotation principle. But sector rotation can also be practiced on fundamentals. Here's how.
Each issue of Barron's provides market performance data on 96 industries in nine industrial groups. These groups are sometimes called sectors, and we use the two terms interchangeably. One of Barron's nine groups contains only the conglomerates -- companies involved in many industries and probably more than one industrial group. For our purposes, however, let's forget about the conglomerates. Some of them may be great investments from time to time, but they don't lend themselves to the sector rotation strategy of investment."
PARING THE INDUSTRIES
So the 96 industries recognized by Barron's are spread over eight industrial groups, an average of 12 per group, but the range is actually four to 23. The industrial groups each has an identifying number:
Figure 2 is our sector rotation strategy model. The model portrays an idealized business cycle as a sine wave of economic growth versus time. The cycle is divided into four phases, and we have indicated which industry groups are especially favored by the economic conditions prevailing within each. Using this idealized business cycle, let's see how a sector rotation strategy might be put together.1. Basic materials
2. Consumer cyclical
3. Consumer noncyclical
4. Energy
5. Financial
6. Industrial
7. Technology
8. Utilities
