8/19/2008

How to profit from top sectors

In a difficult market environment, focusing on handful of top sector is better strategy. While the market is not having broad based advance, some individual sectors are having good rallies. The idea behind monitoring sectors is to profit from it.

Using sector relative strength and stocks relative strength , it is possible to identify the best stocks in the top sectors. In Telechart this is easy but slightly cumbersome to do. One of the ways to do this in Telechart is:

  1. Sort Morningstar Industry Groups by Price vs 4 day moving average and select top 25 sectors.
  2. Create a list of stocks from this.
  3. Take top 20% stock out of this by using a half year relative strength (C - AVGC135 ) / AVGC135
  4. On the small group of stocks you get use a breakout scan like ( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1


If you have IBD Screner this process is simpler. You can try a scan like:

Screen Criteria Parameters
Company's Industry Group Rank From 1 to 20
Stocks trading at new 52-Week High AND Percentage price is below 52-Week High Greater than or equal to: 15
Current 50-Day Average Volume(1000) Greater than or equal to: 100

One of the most important observation of mine about the market is that even a worst stock in top sector will rally more than the best stock in lagging sector.Sector effect is as powerful as blowout earnings or relative strength.

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