Let's Talk about Industry Group Strength

[billyjoe]

Yeah, I know it's boring as hell, but did you know that a great stock in an industry group with a poor relative strength won't perform as well as a bad stock in a top industry group with a strong relative strength? Depending upon what publication you are reading there are between 150 and 300 industry groups. Nearly 50% of the movement of a stock is determined by the group it's in. If you only invest in stocks in the upper 3rd of groups you should do well especially in an uptrending market. They say 80% of stocks follow the market trend. Why not just buy stocks in the industries with the highest relative strength while the market trends upward.

I'm currently running an experiment that will eventually invest equal amounts of money in 100 stocks that are in the top groups. I will stop buying when the market signals a down trend. Will sell stocks with a 8% loss or a 12% gain. Currently only 3 stocks have been bought and they really are mirroring the market. At one point last week they were all down 3% now 2 are down slightly, one up slightly. Will report back when something happens. Current holdings AAMRQ, FIX, HCI.


----------------------billy

[mimo_100]

Yeah, I know it's boring as hell, but did you know that a great stock in an industry group with a poor relative strength won't perform as well as a bad stock in a top industry group with a strong relative strength? Depending upon what publication you are reading there are between 150 and 300 industry groups. Nearly 50% of the movement of a stock is determined by the group it's in. If you only invest in stocks in the upper 3rd of groups you should do well especially in an uptrending market. They say 80% of stocks follow the market trend. Why not just buy stocks in the industries with the highest relative strength while the market trends upward.

I'm currently running an experiment that will eventually invest equal amounts of money in 100 stocks that are in the top groups. I will stop buying when the market signals a down trend. Will sell stocks with a 8% loss or a 12% gain. Currently only 3 stocks have been bought and they really are mirroring the market. At one point last week they were all down 3% now 2 are down slightly, one up slightly. Will report back when something happens. Current holdings AAMRQ, FIX, HCI.


----------------------billy

Great idea Billy. Thanks for your hard work on this.

I also am doing an experiment that I hope to post soon.

How will you know when "...the market signals a down trend"?

[billyjoe]

mimo, As of today I'm going with the market timing graphs at Vectorvest but also consulting other sources when I can such as IBD. Morpheus Trading has a different philosophy. They might greatly cut down on buys but will continue to buy to some extent as long as "set ups" appear that meet their requirements. I forgot to mention I won't be shorting. All buys are in my retirement accounts. Zacks also seems to cut down on the number they rate as strong buys as the market weakens although they always have a strong buy list.

-------------------billy

[riverbabe]

Great idea Billy. Thanks for your hard work on this.

I also am doing an experiment that I hope to post soon.

How will you know when "...the market signals a down trend"?

Like this: http://www.stocktiming.com/Monday-DailyMarketUpdate.htm

[billyjoe]

Thanks, River, Just bought equal amounts of MCK, RGR, BITA. They were on my master list. I looked at their graphs this morning and they qualified. High RT, EPS projections, Group strength, etc. So There are 6 stocks in the portfolio now. All I ask is a 2/1 ratio . Heck, Mr.Market's got an 11/1 ratio over last 18 months.

----------------------billy

[mimo_100]

I use a couple of indicators to help figure market (and individual stock) direction. For the S & P 500, IND1 has an upward bias, IND2 is basically neutral, and IND3 is trending higher. The market direction is up


For the LCI, IND1 has an upward bias, IND2 and 3 are trending higher. Direction is up.


For HCI, IND1 and 3 are trending higher, and IND2 has turned down slightly. Direction is up.


For FIX, IND1 is trending lower, IND2 and 3 are neutral. Direction has an upward bias.




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