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There are over forty sectors that we measure with the following four criteria:
Sector Relative Strength
We use an equal dollar weighting index of stocks created inhouse and then take a point and figure relative strength reading for that index. The relative strength reading is calculated by dividing the price of the index by the S&P 500 and then multiplying by 100. Once that reading is obtained, it is plotted on a point and figure chart. Every index has a price chart and a relative strength chart. The strongest are those whose relative strength charts are in a column of Xs, as that tells us the sector is outperforming the market as a whole. You can also look at the relative strength chart of the sector indices that trade options on the Philadelphia Stock Exchange, American Stock Exchange, Chicago Board Options Exchange, or Pacific Stock Exchange.
Percent Of Stock On A Relative Strength Buy Signal
The point and figure relative strength buy and sell signals are long-term in nature, lasting an average of two years. Within an industry group, we calculate the percentage of stocks whose relative strength charts are on buy signals. This percentage is then plotted on a grid from 0 percent to 100 percent. When it is in a column of Xs and rising, it means more stocks underlying that sector are getting stronger versus the market on a long-term basis.
Percent Of Stocks In A Column Of Xs On Their RS Charts
Within each industry group, we calculate the number of stocks whose individual relative strength charts are outperforming the market on a short-term basis. Though signals on average last two years or more, a change in columns on the relative strength chart lasts generally six to eight months. This percentage is also plotted on a grid from 0 percent to 100 percent, and when this indicator is in Xs and moving higher, it suggests the sector is performing better than the market on a short-term basis.
Percent Of Stocks With A Positive Trend
When a stock is trading above the bullish support line, we say its main trend is positive. The basic tenet here is the more stocks that are in positive trends, the stronger the sector. The percent of stocks with positive trends is plotted on a grid from 0 percent to 100 percent. Like the other indicators, we want this to be in a column of Xs and rising.
Looking at these four sector indicators together gives us a composite picture of just how strong that sector is compared to the overall market. When initiating new positions, focus on those sectors where at least three of these indicators are positive. This is true whether you are a short-term trader or a long-term investor. In market declines, you�re likely not to lose as much ground, and in market advances these sectors will lead the way. Even for short-term investors, you want to be in the sectors that are moving the market, because this is where most of the action lies.
Category: InvestingMarket Leadership was written by:Author:Anthony GreenAdded: Mon, 04 Feb 2008 07:21:29 -0500 This Article Has Been Read 53 times View all Anthony Green's articlesAbout the Author: Collect your free stuff like stock recommendation and investment strategy articles onstock market on http://www.5minutetrader.com/benefits.php. |
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