Sector Strength & Weakness

I constantly talk about trading with the trend. When a stock is weak, or exhibiting signs of a breakdown, look to sell or short on bounces instead of buying on dips - and vice versa. There have been many examples in previous posts such as components of the XLE, CAT, JPM, etc. Sometimes looking at where the money is flowing within sectors makes this decision easier and can give us more insight into which components of a sector to buy on dips and which components of a sector to sell on rallies.

Below is a S&P sector analysis over the past 12 weeks. As you can see from the grid it shows which sectors are Improving, Leading, Weakening, and Lagging. As investors look for safety and the broad market falls, money flows into defensive sectors such as Utilities, Telcom, Consumer Staples, and Healthcare as it has over the past 4-5 weeks. These are the stock that show moving up and the the right in the Improving quadrant. Conversely, money has been flowing out of Financials and Info Technology as they are moving from the Leading to the Weakening quadrant as well as the 2 sectors in red that are in the Lagging quadrant - Industrials and Energy.

Essentially this give us a decent roadmap of which stocks to be buying on dips - stocks within those Improving sectors TELS, CONS, HLTH, UTIL - as well as which stocks to be selling on rallies - stocks within those Weakening and Lagging sectors INFT, FINL, ENER, INDU. As for which in particular, I go through dozens of charts each day and trade the best setups and will try to hit you with one or two by the end of the week. In the meantime, do some TA on your own within strong or weak sectors and hit me with some questions.