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The JSE has remained trapped in a 5% trading range for 6 months now. Not much fun for the SATRIX40 investors:

Under the skin we see tales of massive opposing fortunes with up to 40% difference in returns between worst and best performers, highlighting the importance to the private investor and/or trader of keeping in tune with sector trends on the JSE:

 
Clearly RESOURCES are in a bear market due to renewed global recession fears. Let’s rephrase that – due to fears of the impact of the new global recession that is developing. It does not pay to stay in small caps during times of uncertainty either.

After a short-lived 20% rally, constructed is now down 2.5%. The flight to safety has clearly benefited bonds as represented by the Z-GOVI index. A capital gain of 6% on a bond-index that is paying a guaranteed 8.46% yield at time of purchase is no slouch, lest you think this is a rather pedestrian return.

NEWGOLD is now gaining from the flight to safety. Expect this to gain further into the months ahead. Retail and listed property continue to maintain the star performers, up more than 18% in 6 months. At the time of purchase (20 Jan 2012) listed property was yielding 7.2% dividend. A stunning performance. Technology, food, financials and industrials have held up well with about 12% gains, benefiting from a wholesale sector rotation out of resources no doubt.

It takes brutal sideways markets like this, when uncertainty abounds, for most private investors to fall into the trap of thinking there are lousy returns to be had from the JSE and frustrated at their SATRIX40 returns. Clearly it pays to pay attention to sector trends demonstrated above. For this reason we always encourage our clients to trade various asset classes, with the assistance of various sector /ETF timing models.

We caught the move on Industrials nicely and are still long with a 20% gain:

We got out of construction just in time with a 15% gain. There is no ETF for this sector but you can proxy the construction index with a “hand-crafted ETF” using AEG, MUR, BSR and GRF with a 98% correlation to the index:

 
The Listed Property timing model has been yielding smiles all round for 4 years now. We are still long with 14.3% gain on this last trade. Personally I never sell, I always add to my listed property positions when this model throws out a buy signal.

 
We have been hanging onto gold forever. Every time it nears or touches the thin white or red line, the model signal clients to add to positions:

 
The star-performing sector timing model since 2006 has been RETAIL. Again there is no ETF for this but you can proxy one with a 97% correction to the retail index through buying equal amounts of WHL, FOS,MSM , TRU and MPC.

I never sell with this model, I just keep adding retailers to my holdings. The SELL signal for me comes when our SA Recession model shows more than 50% probability of recession. Until then I keep adding.

 
The Bond Timing model caught a magnificent trade. This is another asset class I never sell, I just keep adding on the dips. Even if there is a recession. The time to sell this asset is when you think recession is over.

Talking of recessions, have a look at collapsing electricity output in SA, overlapped with prior recessions. Given that mining, manufacturing and business account for the lions’ share of consumption, what does this tell you about our economy at the moment?

Looking at the chart, we have never been this low before and NOT been in recession. But looking at one indicator in a bouquet of 20 to make recession determinations is unwise. A story for another time perhaps.

For those wishing to trade on the JSE, to keep abreast of the markets, receive recession updates throughout the month and priceless research, you can subscribe here: http://www.sharenet.co.za/v3/products/powerstocks/ 

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