08/10/11 Burrito

Tonight I would like to take a look at how I am using my industry standings algorithm to formulate a watchlist of stocks.  For the most part, daily charts are in the shit.  There really isn’t anything out there that I find very appealing right now, so I’m again taking a step back to the weekly charts.  By doing this, I’m trying to lessen the daily noise (and there has been a lot of it) to determine if there are ‘better’ patterns forming on longer time frames.

Through using the industry standings algorithm, I can focus on stocks in industries that have been outperforming the S&P 500.  Granted, recently that isn’t saying much, but outperformance is outperformance.

One thing I am interested in observing: in this type of market environment, will the industries that have been hit the hardest also show the biggest rebound on any rally?  The reason I ponder this is because the stocks in industries that are currently atop the standings are likely stocks that fall less in ‘bad’ markets and rise less in ‘good’ markets.

Nevertheless, I’m looking for quality setups on the weekly charts.  Being that it’s only Wednesday, the picture is not very complete for prices this week, so that must be taken into consideration.  With that said, let’s take a look at the industries that have ‘outperformed’ the S&P since it peaked on July 22.

Rank Industry Score Weekly Change 7/22
Change
1 Tobacco 5.72 1.87 5.67
2 Food and Beverage 4.64 2.43 4.69
3 Utilities 2.79 0.94 3.27
7 Telecommunications 1.06 0.73 3.25
5 Retail 1.20 0.80 2.29
6 Financial Services 1.13 -0.15 2.18
16 Transportation -1.18 1.14 1.24
20 Insurance -1.80 -1.30 1.09
10 Wholesale -0.04 1.01 0.93
18 Computer Software and Services -1.64 -0.65 0.36
11 Consumer Non-Durables -0.05 0.54 0.01
25 Electronics -3.00 -0.44 0.01

The “Rank” column is where each industry currently ranks, “Score” is the current score, “Weekly Change” is the score change since last Wednesday (8/3) and “7/22” change is the change in score since the S&P peaked on 7/22.

What does this tell us?

First, all of these industries have outperformed since 7/22.  Some continue to gain in strength (Tobacco, Food and Beverage, Transportation, Wholesale), some have outperformed over the entire time frame, but have fallen off over the past week (not a good sign for Insurance, Computer Software and Services, Electronics and Financial Services).

Remember a score of 0.0 is (mostly) equivalent to what the price of the S&P 500 has over the measured time frame…it’s the baseline.  From here, I can parse a list of industries that looks something like this:

Rank Industry Score Weekly Change 7/22
Change
1 Tobacco 5.72 1.87 5.67
2 Food and Beverage 4.64 2.43 4.69
3 Utilities 2.79 0.94 3.27
5 Retail 1.20 0.80 2.29
7 Telecommunications 1.06 0.73 3.25
10 Wholesale -0.04 1.01 0.93
11 Consumer Non-Durables -0.05 0.54 0.01
16 Transportation -1.18 1.14 1.24

This list is sorted by current rank.  All industries are outperforming since the market peak AND over the past week.  Lets now drill down and come up with a watchlist of stocks in these industries.  As mentioned earlier, daily charts are broken…I’m moving out to the weekly to try and capture a bigger picture.

$PM: There’s nothing wrong with owning a stock that pays a dividend like $PM does.  Being able to lock in a higher yield (currently 3.94%) doesn’t suck either.  Still good for a trade if it firms up above 63.

PM 2011-08-10

$ABV: The pullback on this chart looks very orderly.  I’d prefer if the price can stay above 28.

ABV 2011-08-10

$KO: This is starting to slide a bit too much for my liking.  A rally to the 65-66 region by the end of the week would be preferable.

KO 2011-08-10

$SINA: Another stock that has been on and off my watchlist.  There has been a nice rally this week in the face of the horrendous broad market selloff.  I’ll be watching to see if the price can stay above 90.

SINA 2011-08-10

$EBAY: Not a bad looking consolidation there.  Watching to see if it can stay above 28-29.

EBAY 2011-08-10

$M: Needs more time, but an encouraging sign is if it can continue to find support from 23-24.

M 2011-08-10

$NSC: If this is how the chart looks at the end of the week, I will be encouraged.  Needs to stay above 65.

NSC 2011-08-10

This process has given me a list of 7 stocks each with particular price attributes that I’m going to keep an eye on.  The numbers produced by the industry algorithm are just used as a guide.  They give me assistance in helping to pare down a stock list from over 220 to 7.

Don’t forget to follow me on Stocktwits if you like what you see here, as I always update when I trade and post.

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