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Mapping The Markets by Robin Griffiths, Deborah Owen

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3 Sector rotation

Cyclical analysis is useful in determining the correct asset weighting and global balance of a portfolio, but more detailed “mapping” techniques are needed to navigate the processes of sector allocation and stock selection.

Chapters 1 and 2 showed how cycles of bull and bear markets are driven by the cycles in the underlying economy, but with a time lag. The market discounts anticipated changes, not what is actually happening at present (unless it is some “external” event, such as a terrorist attack, which has not already been factored in, in which case the market quickly readjusts to accommodate this new information).

In the United States, the four-year cycle is closely connected to the political or electoral cycle. In ...

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