Sector and Industry Leaders

JJJJ

I am trying to focus more on entries that encompass sector and industry leaders. Stock Charts data shows daily, weekly, monthly and other specific days of leadership and ranking. These are constantly changing. Is there a typical recommended time frame to identify firm sector/industry leadership that I can enter with specific stock picks ?

markd

Assuming you are looking for stocks to hold for a while (weeks or months), I think I would look for improving relative strength over about a three month period. So you would look for an improving SCTR Line over that period (e.g. SCTR line > rising sma63), or set the RRG tail for that time frame and look for things in or headed toward the top right quadrant.

Alternatively, you could add the Price Performance indicator to your charts with a 63 day sma ( or 13 weeks on a weekly chart). For the sector etfs the parameters would be $SECTOR:$SPX. For industries, use $INDUSTRY:$SECTOR. For the individual stocks, use $SYMBOL:$INDUSTRY (or you could cut to the chase and try $SYMBOL:$SPX). On each chart, look for the Price Performance line (which is relative strength, or RS) to be above the rising 63 sma. The scale values don't matter - just look for improving slope. The closer the line is to a crossover of the MA, the better (in other words, both have been falling and now the line is crossing above the ma). On the chart itself, you want to see some good buying - a few tall bars with above average volume and shallow pull backs on less volume.

JJJJ

Great Thanks..I finally have a strategy !

markd

Well, it's a beginning.

lmkwin

I've only seen RS studies and discussions in regards to the market. I've seen studies that suggest looking at 6 month RS. Nasdaq Dorsey Wright did a "White Paper" a few years ago that suggested that 5 to 7 months RS was a sweet spot. I note that Bruce Fraser often uses a 39 week MA to illustrate RS changes on his charts.

I've also seen presentations that suggest studying hard during market pull backs. The ones that show the best RS of the bearish market pullbacks are often the new leaders in a bull phase of the market.

markd

It's worth keeping in mind that most studies are conducted with professional portfolio managers in mind - players who are limited to larger stocks and longer holding periods. Small and mid-cap stocks don't necessarily conform to larger cap behaviors, so the "rules" don't necessarily apply in all cases. It's an area where individual investors can do well, with some serious effort. Larger stocks do govern the movement of industry group indexes, so smaller and mid cap stocks that begin to outperform the index (symbol:industry line turns up) are often the place to be. Note that improving RS can mean rising faster OR falling slower. The three month time frame can give you a very early heads up that things are changing. The drawback is more false positives. You have to review the price and volume action for seller exhaustion AND buyer strength. And, you have to recognize fairly quickly when a situation is not working out (price action, accumulated volume divergences). "Smart money" is not always right. Using a longer time frame can be safer, but often the best part of the move (on a percentage basis) has already gone by. If you are a fan of the CANSLIM method, RS (Price Performance vs industry) is pretty good at catching the "N" part - which is something "New" - could be a new product, a new CEO, a change in market conditions for that industry, etc.

lmkwin

I like these quotes

"smaller and mid cap stocks that begin to outperform the index (symbol:industry line turns up) are often the place to be. "

"Using a longer time frame can be safer, but often the best part of the move (on a percentage basis) has already gone by."

I think that we may be seeing the turn toward smaller caps now. Could be a headfake. Like the Financials sector, which has headfaked a couple times already. We can only know in hindsight.

In my public ChartList, I keep track of members of the SP Midcap 400, the SP Smallcap 600 and the members of the QQQ (which is large cap) that show signs of significant distribution turning to signs of significant accumulation. To be added to the list I use something that I call Dynamic CSS patterns on Point and Figure Charts. It's a fun study. Most of the recent additions have come from the Sml and Mid.

https://stockcharts.com/public/1175948