|Industry group||1 month performance|
|Building – Residential||19.40%|
|Retail – Apparel shoes||15%|
|Retail – Wsale Auto||11.30%|
|Finance – SBIC Commercial||10.30%|
|Finance – Consumer Loans||10.10%|
|Mining – Silver||-18%|
|Oil Field Machinery EQ||-18.80%|
|Food – Meat Products||-21%|
|Steel – Producers||-29.50%|
|The group “Building – Residential” scored third consecutive week of gains and continues to top the list of monthly RS. The Retail – Apparel, shoes group is in strong uptrend since the middle of July and climbed to second position. Last week brought 2 financial industry groups at the top. Both are advancing in good temp since the middle of July. Medical groups, which dominated the list during the last month had bad week and only one (Medical – Hospitals) managed to stay in top 10.|
|Looking at the bottom of the list, nothing changed. The same industry groups experienced even bigger correction.|
Rob Hanna from Quantifiable Edges performed an excellent research on the short-term effects following downside acceleration. He tested a system than buys SPX at the close after 4 straight down days and the decline during the last (fourth) day is twice bigger than the preceding three. The system sells after x days, where x varies from 1 to 8. The positive expectancy of the system is excellent. Not only the reliability of the trade (% of time being right) is above 70% for all tested cases, but the average profit is more than twice bigger than the average loss. The nature of the trade is strictly short-term.
How come big acceleration in downside momentum often leads such reflex bounces? When the price of an equity reaches certain level of depreciation, it:
1. Attracts value investors.
2. The traders, who shorted it are afraid to give up their nice sized profit and are covering part of their positions.
3. Short-term traders are trying to trigger short-squeeze.
|Top Industries||1 month performance|
|Building – Residential Comm||14.5%|
|Medical – Outpatient HM Care||13.3%|
|Printing – Commercial||12.1%|
|Medical – Nursing Home||11.9%|
|Medical – Hospitals||11.6%|
|Textile – Apparel||11.3%|
|Medical – Dental Supplies||10.8%|
|Aerospace – Defense Equipment||10.7%|
|Retail – Discount||10.5%|
|Bottom Industries||1 month performance|
|Steel – Producers||-20.10%|
|Mining – Silver||-15.70%|
|Food – Meat Products||-13%|
|REIT – Mortgage Trusts||-11.20%|
- Do not turn completely bullish or bearish on the whole market. Look at which sectors are bullish or bearish;
- When you see a move happening in a sector, act upon it immediately, irrespective of the overall market direction. But do not act the same way on other sectors;
- Confine your trading to prominent stocks in prominent sectors. If you cannot make money out of the leading sectors and stocks, you are not going to make money out of the stock market as a whole;
- At any time there are only 3-4 groups leading the market.
One of the most important observation of mine about the market is that even the 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.