FAQ – Sector Rotation

What is factor-based quantitative analysis?

Factor-based, quantitative predictive analysis (QA) is a technique that seeks to understand and predict behavior by using mathematical and statistical modeling.  In the financial services industry, QA is used to analyze investment opportunities to provide predictions of when to purchase or sell securities, and the potential magnitude of a move.  The input factors, or independent variables, that are fed into a quantitative model include financial ratios such as price-earnings ratio (P/E), earnings growth, revenue growth, cash flow, among others.

 

What is the premise behind the sector rotation strategy?

Large hedge funds and automated investment bots continuously rotate large amounts of money across different industry sectors.  Typical sectors include industrials, energy, technology, health care, consumer staples, consumer discretionary, transportation.  There are approximately 60 main sectors that are significant.  There is actually 200 total sectors when looking at a detailed map of all sectors. When cash starts to flow into a sector, e.g. semiconductor companies, it will push up the stocks in this sector for a week or two.  Sometimes cash will flow into a sector for several months. However, once these large hedge funds decide to book profits and move the cash to another sector, the stocks and ETFs of the old sector quickly drop.

The Sector Rotation strategy takes advantage of this phenomenon of cash flowing from sector to sector, and follows the money.

How do I set up the autotrade rule for the Sector Rotation strategy?

Autotrade is a system that allows MCTO to send trade alerts to your broker to automatically make trades in your brokerage account. The minimum required capital for the Sector Rotation service is $10,000. We currently offer autotrading for the Sector Rotation service through Autoshares, TradingBlock and Global Autotrading via Interactive Brokers or E*TRADE.  If your broker is not listed please contact us and we can contact the broker to possibly enable autotrading.

Please refer to the following steps to set up an autotrade rule in your brokerage account:

Step 1: Sign-up as a paying subscriber to the Sector Rotation service. We offer a special rate for first-time subscribers of $5 for the first month.
Step 2: Log into your brokerage account and navigate to the autotrade page.
Step 3: Select MCTO Sector Rotation service, and in the pull-down parameter window select “Specified Dollar Amount”.
Step 4: Decide how much you would like to allocate to the service, in total.  The minimum amount to trade is $10,000, and then it increases in $10,000 increments.
Step 5: Input the dollar amount that you would like to allocate to each trade that is sent to your broker.  If you would like to allocate $10,000 to the service, please enter $600 as the autotrade rule.  What this means is that each time we send in a trade to your broker, they will allocate a maximum of $600 to the trade.  If you would like to allocate $20,000 to the service, please enter 600 x 2 = $1200 as the autotrade rule.  If you would like to allocate $30,000 to the service, please enter 600 x 3 = $1800 as the autotrade rule.  And if you would like to allocate $70,000 to the service, please enter 600 x 7 = $4200 as the autotrade rule.
Step 6: Click on OK and you are done.  The broker will contact us to confirm that you are an active client and then will enable your autotrade rule.

If you have any questions about setting up your autotrade rule please contact us.  To talk to someone directly please call 877-248-7455, or email us at support@monthlycashthruoptions.com.

Why can you beat the overall market by rotating into specific sectors?

Because when money starts to flow into a sector we can concentrate a certain % of the Sector Rotation portfolio into this sector and make some excellent returns. XXXXX