Industry Strength and Weakness – Sep 3rd

Sep 3, 2007: 8:29 PM CST

I hope everyone has a great Labor Day holiday weekend and took some time to cool down after the rampant volatility we have been experiencing in the market.

To guide your thinking and get you back into the game, look for yourself at the broad picture, and I will help you focus on potential ideas generated from the readings of brief Industry Group Analysis courtesy Prophet.net.

First, let’s look at the highest ranked (relative percentile) basis of the strongest Industries over the last three months:

From this chart, the most significant findings come from the industries that have been gaining strength, and have the most number of stocks.

“Specialty Chemicals” has remained the strongest industry over the recent turbulent period, staying consistently in the 100th percentile – the industry has 46 stocks in it including the following filtered candidates in solid uptrends:

FloTek Industries (FTK)
Lyondell Chemical (LYO)

According to the chart (reading the numbers from right to left), “Networking and Communication Devices” is experiencing significant money flow into the Industry. A few filtered candidates in strong uptrends include:

Cisco Systems (CSCO) which has also been in the news frequently
Juniper Networks (JNPR)

I wanted to highlight significant positive money flow into another industry:

Candidates to study in this industry group include:

Bio-Rad Laboratories (BIO)
Cubic Corporation (CUB)
Garmin LTD (GRMN) which is in a dramatic uptrend and has been mentioned in the news frequently

For those looking to go short (or to hedge with short-sell swing trades), here are the worst performing industries:

Highlights and selected filtered candidates:

Residential Homebuilders:

KB Homes (KBH)
NVR Inc. (NVR)

Surety/Title Insurance:

First American Corp. (FAF)
Ambac Financial Group (ABK)

These candidates should give you some ideas for further research and analysis for possible swing-trading candidates for the coming week.

I expect the week ahead to be less volatile than the weeks we’ve been experiencing. Even still, trade safe and with stops – and stay off the leverage unless your trading plan calls for it.

 

 

 

 

4 Comments

4 Responses to “Industry Strength and Weakness – Sep 3rd”

  1. Glyn Says:

    Hi Corey,

    I’ve recently seen comment that the Dow was forming an inverted H&S – I was intrigued by this so dug out some commentry on what that constitutes

    “The head and shoulders pattern can sometimes be inverted. The inverted head and shoulders is typically seen in downtrends. (What’s noteworthy about the inverted head and shoulders is the volume aspect. The inverted left shoulder should be accompanied by an increase in volume. The inverted head should be made on lighter volume. The rally from the head however, should show greater volume than the rally from the left shoulder. Ultimately, the inverted right shoulder should register the lightest volume of all. When the market then rallies through the neckline, a big increase in volume should be seen.)”

    I guess I’ve three questions (a) what are your thoughts on the forming or otherwise of an inverted H&S? (b) if in agreement with the forming do you believe it fits the volume requirements as mentioned above (c)do you even agree with the quote above?

    Regards

  2. Corey Rosenbloom Says:

    Glyn,

    I actually thought the opposite – I’ll post about it if I get the chance soon. A few of the Dow 30 components (stocks) were recently showing near perfect head and shoulder patterns (see Caterpillar – CAT).

    Before I address the questions, realize that traders can’t randomly view price patterns and claim there is a pattern there just because it looks like it. The quote is correct – and going back to R. Shabacker – the head and shoulders pattern is a relatively complex reversal pattern than can only (validly) occur after a solid uptrend has been confirmed and observed. It would be logical to anticipate one recently (in the Dow, at least), and it arguably has completed.

    It would be inappropriate to look for – or anticipate – an inverted head and shoulders in the Dow or overall indexes because the indexes have been in a major uptrend, and just recently showed the beginnings of a possible new downtrend. Thus, there could be no ‘legal’ head and shoulders pattern there.

    A: Thoughts above. A proper inverted pattern cannot form unless there is an extended downtrend
    B: The recent action in volume has been more bearish than bullish, in terms of decreasing on rallies and increasing on downswings
    C: I do – in terms of proper pattern recognition. The head and shoulders is a documented and high-probability reversal pattern when it occurs… but it’s not magic by far.

    Good thoughts there Glyn! Thank you for providing the quote.

    Yours,

    Corey

  3. Glyn Says:

    Interesting – thank you for feedback. I couldn’t see the inverted H&S and when I researched the definition (quoted) I was even more sure but given this is all still very new to me……

    PS: I’ve got a few Oct puts on CAT, hoping it bounces of the Fib 38.2 line and returns to a downward slide today.

  4. Corey Rosenbloom Says:

    Glyn,

    The most important thing to do when looking for a pattern is to do so objectively, not subjectively. In other words, have a clear definition and do not deviate from that definition by far. Allow normal volatility (wiggle room) but don’t try to force the market into your definition of what you expect.

    The most classic example of a failure that most new traders make is that they look for ‘flags’ in a trading range.

    Bull & Bear flags are relatively easy to “spot” on a chart, but – just like the head and shoulders pattern – a true “flag” requires an up or downtrend before it can be ‘valid.’ At least, you’ll likely have more winning trades if you trade bull flags (retracement patterns) in the context of an established uptrend, rather than ‘randomly’ found or contrived on a chart.

    You are wise to find the context in each pattern you see. As a beginner, it may be best to verify a pattern with a reference book like “The Encyclopedia of Chart Patterns” by Thomas Bulkowski.

    You’ll also be better able to spot proper patterns after experiencing the patterns over time and noting their resolution in real time.