John Nyaradi’s Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs (Wiley, 2010) is for the most part a book for the novice investor who wants to be a bit more active in the market. The general plan is to use ETFs combined with straightforward signals to find winners and manage losses.
After introducing ETFs and the classic S&P sector rotation model, Nyaradi recommends expanding one’s horizon beyond the nine basic sectors in the search for ETFs that will outperform. The “new science of sector rotation” has a much larger palette from which to select, including international offerings, currencies, and commodities. Moreover, given government intervention in the economy after the “Great Recession,” a trading plan that uses sector rotation can no longer rely exclusively on the traditional economic cycle. Instead, Nyaradi suggests a more technical approach.
He offers several trading systems, all mechanical and easy to implement. The first is “almost like buy and hold” and relies on a long-term moving average for buy and sell signals. The second uses support and resistance lines on point and figure charts. The third system invokes the familiar golden crossover.
Nyaradi’s own system for trading ETFs is a bit more complicated because it looks for confirmation of the likelihood of a profitable trade. He therefore uses five signals to determine if and when to enter a trade, two based on point and figure charts, two on technical indicators, and the last on relative strength. He then describes how to score these five signals. The ETFs with the highest scores have the highest probability for profit.
As we all know, getting into a trade is less than half the battle. The hard part is managing the trade and knowing when and how to get out. Nyaradi discusses position sizing, stop placement, and exit strategies.
After a chapter on the psychology of trading, he gets to what the title promised—five super sectors. No nail biters here, though room for debate. They are Asia, energy, health care, technology, and financials.
The most interesting part of the book for any reader who is not a rank novice is the chapter entitled “Ask the Experts.” Nyaradi has gathered a cast of eighteen top investors, traders, and managers to pick their brains about what they view as potential super sectors. The interviewees are Larry Connors, Marc Faber, Keith Fitz-Gerald, Todd Harrison, Gene Inger, Carl Larry, Timothy Lutts, Tom Lydon, John Mauldin, Lawrence G. McMillan, Paul Merriman, Robert Prechter, Jim Rogers, Matthew Simmons, Sam Stovall, Cliff Wachtel, and Gabriel Wisdom and Michael Moore. The interviews average two and a half pages each.