Sector Rotation | Stock Picking Strategies

Sector Rotation [Video Transcript]

Stock Market Sector Performance 10-4-17“What’s more important? A stock that keeps making higher-highs and higher-lows or the fact that the advance happens with a decrease in volume?

Right, something I think you do have to be aware of…

A question that came up yesterday in coaching “I can’t understand, you know we keep going higher but nobody’s really trading.” My reply… What’s more important the fact we keep going higher or the fact that there’s lighter volume?

You aren’t going to take the volume into the bank.

Right, right exactly. I think well I mean I think we’ve been harping on this now for three months but I think it’s still important, it is finsing the individual stocks. We’re not really trading the markets, it’s really hard to trade the market as a whole. Especially if you’re trading the indices in a light volume market.

You’re going to get stopped out a lot.

If we can find each the strong sectors or the weak sectors we can trade them, then we’re trading with the institutions..”

Sector Rotation Video Discussion from Today’s Game Plan Meeting

Like the hospital stocks, they’re a do nothing right now. Cyber security is weak but it’s still it’s getting weaker but it’s still not it’s still a do nothing so we pull, we step away from those.

We go into others like to like the video gaming stocks were strong yesterday.

I think we call them out in the drone stocks and the defense stocks which Ken had called out last week, than oil sector is weak. So we have sectors to watch. Yes, I think that’s the right way to approach it. I actually know a lot of traders that focus on the market a lot and then only trade with the market is obvious and you could lose out on a lot of opportunity if you’re not stock specific and then she with the market’s doing.

Because there’s so many individual opportunities to take advantage of when the market’s not really doing anything or it’s not that obvious. I think when the market is obvious, it’s a bonus to your stock-picking ability as opposed to only trading when the market trend is clear.

Sector Rotation Trading vs. Trading the Market

I know it holds a lot of traders back, they say “well the markets not obvious today so I don’t want to push it.” But you get these trends like Facebook yesterday, I mean my gosh…

Right or “cause the markets just drifting I can’t do anything.” Right, right, right exactly and you know what that really boils down to? It’s lazy research.

Right. That’s really what it boils down to because if you do the work and really think the trades through, there’s a lot of opportunity in individual stocks and sectors.

I think something that’s important too that we’re constantly discussing is multiple stocks in the same sector and paying attention to whether or not there’s more than one stock doing the same thing which ultimately gives you a little bit more conviction, to put those trades on because again just from a commonsense perspective which is a trader should always be common sense should be that complicated

That means there’s money flowing into the sector or out of the sector. You know to take the opposite side and we’re we’re looking at these guys and a lot of them.

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Actually let me go back out to weekly chart, a lot of them are doing the same thing. You know we had that little run where the casino stocks, we had some really profitable calls in there for about a month and a half it was that sector, we were focused on where is something obvious happening and obviously there was the cybersecurity stocks for about I guess what about 3-4 weeks.

You know we made a group call, it look they’re not in play anymore, they’re not doing quote-unquote what they’re supposed to do and actually you know we’ve discussed this but I’m going to bring it up again anyway. You have your twenty period moving average and you have your fifty period moving average as general charts/ moving averages that most people use you should hold the 20 if the stock is still strong.

If it doesn’t, it becomes a little bit suspect, but if you do hold the fifty period moving average, should retest where it came from, which in this case is the previous high. If that doesn’t happen again you get this-so putting together those pieces:

  • One it should hold. (The 20 period moving average)
  • Two, it should hold. (The 50 period moving average)
  • Two-and-a-half it should retest. (The previous high) If this one holds and if that doesn’t happen.

Now you putting all the pieces together for not only to not be long a stock that that should follow through but didn’t. But now, it’s actually off of your list today and you’re allocating better… and again let’s say this relatively, sector rotationeverybody has limited resources, you want to allocate your resources to the best idea we expect follow through.

Just taking it off your list because it doesn’t do what it’s supposed to do that immediately puts you in a better position to earn consistent money by spotting where you see sectors not doing what they’re supposed to do and then moving over to better trade ideas.

We actually called that in the airlines too remember? Right. Good short-sales, good shorts and then all of a sudden, like, nope, it’s in a box. Take it off your lists, it’s not, we’re not getting the same follow-through. You know, lo and behold we didn’t waste our time here for the entire month of June and July after this trading range.

And then we started to get this sideways choppy price action.

So you know that’s the real value I think in these pre market game plan meetings Marian.

It’s really about walking through how to spot the good opportunities

  • How to recognize whether or not there’s still good opportunities.
  • You know we talk about the progression from how much profit potential there is.
  • Which are your best trades to stick too.

I think Ken actually had wrote it in the Game Plan forum yesterday about sticking to your plan and really thinking this stuff through. Trading with consistency is, I want to make sure I use a compliant word…it becomes much more, this is the best way to say it… it becomes much more like you’re running a business that you can expect to earn money

Because you have a process for how you earn money, and that includes learning what not to do and it to me that’s the most exciting part of hosting these meetings. Because when you get emails and people really saying “I’m starting to see it!” that kinda stuff that’s exciting to me. That’s really why we’re doing this together.

Our goal is to help each other…look there’s enough money in the stock market for all of us to make money. It doesn’t matter if we’re all looking at the same stocks. I really get excited when I see that kind of progress and teamwork.

The Strongest Stocks in the Strongest Sectors

“When you clearly see a move coming in a particular group, act upon it.

But do not let yourself act in the same way in some other group, until you plainly see signs that the second group is in a position to follow suit.  Have patience and wait.

In time you will get the same tip-off in other groups that you received in the first group.  Just don’t spread out over the market.

Confine your studies of movements to the prominent stocks of the day.  If you cannot make money out of the leading active issues, you are not going to make money out of the stock market as a whole.”

— Jesse Livermore.

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