One of the very first books I acquired when I first started out was How To Make Money In Stocks, by William O'Neil. Truthfully I didn't think much of the book when I first read it, but there was one page that one page that was in the center of the book that had one paragraph that I couldn't get free from my head. It's been over twenty years and I can't think about the exact wording but it alluded to the belief that individual stocks adhere to other stocks in that same sector over 70% of that time period. I remember right after reading that section, thinking to myself personally why this writer buried such important information in the center of a book available as one obscure paragraph. This, in my opinion was the most important part of the book.
I typically commence my analysis involving sectors by considering industries that had a long trend nowadays. I want to discover sectors which are beaten up and will be ready to make a comeback or sectors which might be trading above 12 months highs. My goal is to discover a market group and continuously monitor the stocks in that sector for pullbacks clear of the main trend.
One sector I'm currently considering is the home building sector. This sector continues to be beaten up during the last several years and it is beginning to seem like it's making a turnaround recently. Take a look at this chart of KB Property, one of this country’s leading home builders in many states. The stock has been doing a bear market along with all the other stocks in this sector for around 6 years currently. Notice the double bottom plus the uptrend that began several months ago. Remember that it is a monthly chart which in turn represents strong fundamental changes inside markets over many years. This is how you want to begin sector analysis with very long term view from the sector.
The second thing you have to do after you discover a turnaround sector is always to confirm that other stocks in the market are following coupled or correlating to the first stock a person examined. You want to be sure that other larger stocks in that sector are just about doing the same thing more or much less. This is a vital step because any time multiple stocks inside same sector are behaving a similar way it demonstrates there is a fundamental reason for their behavior. Markets will definitely not follow or mimic 1 another for extended durations when there's zero fundamental relationship or basis involving the two companies. Consider this chart to D. R Norton investment, it's in a similar industry group since KB homes and it has a similar business structure. If you think about the two companies you will see that they are generally trading very similarly to one another. I didn't do correlation statistical studies but I'd bet the correlation has expired 85 percent by considering the graph from the two stocks.
Stock sector analysis is best approached from a protracted term perspective. First isolate the sector you are looking at and then commence analyzing the strongest and weakest stocks in that sector. Once you recognize the closest stock trading, compare them next to each other to see what kind is the strongest and what kind is the weakest out of the two. Once you experience this process, you can start your short term trend analysis and actual set up conditions for this strongest and weakest stocks in just about every sector. Next time I will disclose where to go from throughout your stock field analysis research
The next step is to analyze both equally stocks together so you can see how they will compare against each other regarding strength and weak spot. Notice we are generally deep into our own analysis and we're still only looking at however long it takes view of this sector. By looking in the sector through a magnification glass we can continue to see which stock is the foremost and worst candidate for short-run set ups.
That’s in the event that for today’s tutorial. Please visit marketgeeks. com to download your no cost swing trading statement. This is Roger Scott wishing you the best