SECTOR SEARCH

Morning Scan

In this of Sector Search, we will discuss additional ways to identify shorter-term sector strength throughout the equity markets. As noted in our previous Sector Search – Finding Sectors, dated 6-25-24, there are several investing styles, strategies, and time availability, that may decide whether one invests in, or trades, sectors, rather than individual stocks.There are many avenues in which to invest in, or trade certain industries, including the use of Exchange Traded Funds (ETFs), explained in our publication When to Buy and When to Sell: Combining easy Indicators, Charts and Financial Astrology (available on Amazon).

     Many beginning investors prefer to start with ETFs, as they are generally less volatile and less susceptible to earnings reports, bad news, and insider ownership. These instruments are the simplest ways to invest in a specific industry, as they are made of up several companies within a sector, rather than just one. On the negative side, an ETF will likely not perform as well as the strongest stocks in that sector/industry, as it averages in the worst performers as well. Most of these funds do not equally weight their holdings, however, which may skew the results in either direction.

      As we also noted in the previous blog, some sectors are interest rate sensitive, such as real estate, commodities, bonds, currencies (including Crypto), technology, globally traded entities, and to some extent financials. Others are more economically/inflation driven, like energy, retail, defense, consumer staples (necessities) and discretionary (luxuries), utilities, etc…

      Sector “rotation” is a common strategy that many professionals utilize based on seasonality, interest rate changes, earnings, perception of change, and cycles. This strategy can be beneficial to those highly in tune with the markets, and familiar with these time events. They can move rather fast, however, and this strategy is not normally beneficial to long-term investors.

      There are various ways to research stock sectors, including sources like Investor’s Business Daily (IBD), also discussed in our publication, and many financial sites online including Yahoo, BarChart, StockFetcher, and Finviz, to name a few. One in particular, BarChart, can be used on a daily basis to review the sectors with the most momentum in either direction. For day and short-term traders, it is a very good idea to review sector performance, which is reported in a few different ways.

      For trading/investing ideas, one should first search or scan for current “leading” and “lagging sectors on the above noted sites. After identifying the strongest sector price action (in either direction), select those with the strongest momentum (including higher than average volume), which are usually the best for the short term. Focus on following the trend, while it lasts, as they should provide the best opportunity for high probability trades. Be sure not to be in an open trade with any of these equities when they report earnings.

      Second, check the moving averages on the charts of these same equities. Make sure they are “smooth” (rather than choppy), without any recent crossings of lines in the opposite direction of its trend. Using other indicators may be helpful at this time, such as Relative Strength or Support and Resistance indicators, to confirm and verify the direction.

      Another potential strategy regarding sectors is to choose the best stock(s) in an industry during a strong market down day, and place on your “watch list.” When the overall market reverses, those stocks are generally the first to recover. This works with the weakest stock on a strong up day as well.

      Astrologically, there are also signifiers that suggest better times to be aware of potential investment opportunity in an industry or sector. Planet transits and aspects, in zodiac signs (also noted in Chapter 4 of our publication), often symbolize, or “rule” different industries based on positioning in the sky, comparable to cycles and repeated patterns in the market.

      The “outer” planets (Saturn, Uranus, Neptune, and Pluto) possess longer lasting energies, and often coincide with sector growth and long-term Moving Average trends. The planet Jupiter, is the best example, however, as it is known to heavily effect certain sectors related to the sign in which it is positioned (please see our Planet Power - Jupiter Effect blog, dated 3-27-24), as it expands energies and has a positive connotation. Jupiter is currently transiting the sign of Gemini, which has resulted in communications, AI, and robotics gains. In the first half of 2025, it will cross into the sign of Cancer, more focused on the home, protection, and real estate, though Pluto in Aquarius will continue the AI and robotic themes.

      The “inner” planets (Moon, Mercury, Venus, and Mars), as we often discuss in our blogs, are shorter term signifiers concerning the financial markets. For those who utilize planetary motion, the Moon is more of a focus for day-traders, while Mercury, Venus, and Mars can be used by swing-traders.

      Please stay tuned for future “Sector Search” blogs, as well as other related blogs that include favorable industries to focus on during specific economic and astrological conditions.