2020issue C0230-35
A five-phase compass for sector rotation and book context
A teaching case locates a cycle on a five-phase compass, checks a compact US sector dashboard, and ranks leadership by momentum so one position can be judged as a weekly-to-monthly regime problem rather than a headline reaction.
- Use the five-phase compass to locate where price sits in a cycle instead of trying to read the entire market at once.
- Judge US cycle health with one small-cap index and five sector proxies, and treat headline-driven trading as a distraction.
- Rank sectors by momentum and relative strength, then run a weekly phase check before deciding a trade still has a regime tailwind.
- Watch the stocks-to-commodities ratio as historical regime context, not as a guaranteed forecast.
A middle path between checklists and manuals
The archive presents a five-phase market map as a simple compass. The aim is to help a student locate a cycle instead of trying to interpret the entire market at once.
That five-phase compass is offered as an accessible middle path: more actionable than a passive personal-finance checklist, and less intimidating than a dense technical manual.
Price first, then news
Headline risk is treated as a distraction. Price, volume, range expansion, and momentum are the primary evidence. News is used only when a technical reason already exists.
That price-first floor habit keeps price, order flow, and technical confirmation ahead of opinion. A headline can wait until the tape has already given a reason to act.
The economic modern family
US cycle health is judged with a compact dashboard called the economic modern family: one small-cap index plus five sector proxies. The proxies are brick-and-mortar retail, transportation, regional banks, biotechnology, and semiconductors. The set is used to judge cyclical versus noncyclical health.
In the 2019 example, broad large-cap strength without a matching small-cap recovery was read as a warning that the real economy was not confirming the headline tape.
Retail was singled out because consumer spending is a large share of GDP. Brick-and-mortar retail had lagged the broad market, which suggested sentiment was not fully showing up in activity.
A weekly phase check
A weekly phase check steps back to weekly moving-average slope and location. The question is whether a trade thesis still has a regime tailwind.
On a China large-cap proxy, that check used a reclaim of the 50-week and 200-week averages, positive slopes, and a nearby invalidation just above the long-term average.
Rotation by rank, not story
Sector rotation is described as a quantitative model that ranks groups by momentum and relative strength rather than by narrative.
That momentum relative-strength rotation is how capital can shift toward leadership and away from lagging groups, without needing a new story for every move.
A stocks-to-commodities cross-check
The 2020 outlook favored watching the stocks-to-commodities ratio for a stagflation-style regime. A late-1970s inflation-fight anniversary was used as historical context rather than a guaranteed forecast.
Keeping one trade in context
TradersWeek editorial reading: the workflow is a filter for the rest of the book. After the compass, the compact sector set, and the weekly phase check agree, a single position can be held inside a diversified, regime-aware mix. If they do not agree, the editorial reading is that the position is still a tape opinion, not yet a book decision.
All readings on this track · 7 readings
- 1998Evaluating a binary relative-strength allocation
- 1999Rank-based sector-fund rotation with cash
- 2017Classroom rotation across a short factor-ETF menu
- 2017Evaluating momentum ETF rotation engines
- 2018Rotating international sleeves on relative-strength cycles
- 2019Rank-based sector rotation failed a late-2018 defensive-shift test
- 2020A five-phase compass for sector rotation and book context