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Registered User
Joined: 10/7/2004
Posts: 2
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I am looking to improve my top-down approach to finding trading candidates. I am thinking the approach needs to include the following:
1. Where are we in the economic cycle? 2. What sectors are leading now? 3. What industries are leading in those sectors? 4. What's the market direction right now?
#1 will just take some study. #2 is where I need some suggestions. First, I can't even get consensus on what a sector is. I see statements like "there are 9 sectors" or "there are 11 sectors". In Worden Studio, I see 31 sectors! Then, I need a way of understanding sector rotation--which ones are rotating out of favor and which ones are rotating in. Once I have some confidence in my understanding about that, I'm pretty clear on mining for strong industries using the MG symbols. And lastly, the overall market direction is pretty clear--and the daily Worden notes help with that.
I welcome any suggestions on determining sector strength and rotation.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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Typical sectors are:
1) Basic materials
2) Consumer goods (staples and cyclical)
3) Energy
4) Financial
5) Industrial
6) Technology
7) Utilities
8) Transportation
9) Capital goods
Realize that you will see more sectors listed because people want to "zoom-in"
on where the action is.
(Technology can be divided into: software, fiber optics, wireless and so on)
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Basic Sector Rotation (S=stocks, B=bonds,C=commodities)
#1 Early expansion: B up, S up, C up
#2 Peak expansion B dwn, S up, C up
#3 Late expansion: B dwn, S dwn, C up
#4 Early contraction: B dwn, S dwn, C dwn
#5 Peak contraction: B up, S dwn, C dwn
#6 Late contraction: B up, S up, C dwn
Realize this is theory. the economy is not requires to follow these
patterns.
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I have had a lot of success analyzing sector strength from
100 to 250 days. I use the percent change over that period.
I do not use the industry group sectors. I use sector Mutual funds
and ETF's to determine what's hot and what's not.
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I use a 40 to 45 week simple moving average on the SP-500 to
determine if we are in the bull or bear mode.
Thanks
diceman
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Registered User
Joined: 10/7/2004
Posts: 2,126
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Read "trading for dummies". Despite the title it should give you a clear understanding of the economic cycles.
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Registered User
Joined: 9/14/2006
Posts: 11
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The major market sectors can be followed by using the iSHARE sector funds. There are a total of 12 sector funds including REIT and naterial resources. I keep those funds in a Watchlist and rank them according to their one month price performance. SPDRs also have sector funds but break the market up into different sectors.
A web search on "sector rotation strategy" will reveal several investment strategies using sector funds.
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Registered User
Joined: 9/14/2006
Posts: 11
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Here are a some links for more information on sector rotation and market cycles.
(URLs removed by Moderator)
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