TheTechnicalTake.com Sector Analysis

7/23/2008

Wall Street lore states that a �rising tide will lift all boats�. If the market is trending up then almost 75% of equities should benefit. Similarly, at a sector level, a great deal of a stock�s price appreciation can be attributed to an entire sector�s movement. Thus this is TheTechnicalTake�s dogged pursuit of opportunities via sector analysis. Utilizing innovative tools, I hope to identify not only the strongest (weakest) sectors but those with the greatest potential for price appreciation (depreciation). This information and analysis would be of benefit to those individuals investing in exchange traded funds (ETF�s) or with Fidelity Select Funds. The site will follow a range of sectors, and during the trading week, I will analyze certain sectors in greater detail hoping to find profitable trading and investing opportunities.

The 15 largest capitalized stocks are followed in each sector, and from this information, sector charts (see graph to the right) can be constructed using the following composite indicators:

Advance � Decline Line for each sector
McClellan Oscillator for each sector
New High/ New Lows for each sector
Trading Index (Arms Index) for each sector
Bullish % 40 day Moving Average for each sector
Bullish % 200 day Moving Average for each sector
On Balance Volume for each sector
Relative Strength of each sector

SECTOR CHART

Click to enlarge: Medium | Large

In addition to breadth and price data from each sector, asset flows are monitored in the Rydex Funds at the sector level. This data can be viewed in two ways. First, monitoring asset flows helps one in determining which sectors are receiving the greatest attention from investors. These are the sectors we want to be investing in. Second, we want to be able to identify those times when investors are avoiding or overly too enthusiastic towards certain sectors. In identifying theses extremes of investor pessimism or optimism, one can look for signs of a reversal in the trend. When everyone is bullish, we might anticipate a trend reversal or avoid buying into the sector as the party is ending. Conversely, when investors are too bearish in their outlook this might be a good time for a low risk, high reward long trade. Measuring Rydex Fund asset flows is measuring investor sentiment, and this data is a useful adjunct to the price and breadth analysis contained on the sector charts.

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Click here to see a list of indicators.