Looking for Strength

It’s easy to get lost in these ridiculous trading days.  Just yesterday the world was on the brink of collapse, tonight the problems in Italy, Spain and France are being ‘mitigated’ and the stock market is ‘cheap’ and ‘ripe with bargains’.

Holy hell.

I can’t find a single daily chart that looks appealing.  My trading style is predicated on buying stocks that are exhibiting a contracting price range, volume and volatility.  Hell, everyone has been watching the market, my mom probably knows that we are experiencing an expanding price range, way above average volume and extreme volatility.

This is a fantastic environment to lose lots of money vis a vis wreckless trading.  Conversely, this is also a great time to take inventory, observe the actions of the market and try to find pockets in the market (i.e. industries) that are showing signs of relative strength.

Things are eventually going to calm down….it may be a while, but it’s going to happen.  When it does, I want to be prepared with a list of stocks that I have been stalking with the intention of pouncing on them when the opportunity presents itself.  Patience and objective research are key.  Therefore, what I aim to accomplish in this post is to determine what industries have been holding up the best in this current environment.  I’m interested in industries that have managed to come out ahead of the S&P 500 after this whipsaw we have witnessed from Monday – Thursday.  Let’s take a look at the standings sorted by performance since 8/5 (Friday):

2011-08-11-1

These results are sorted descending by score change since 8/5.  For reference in this and each successive presentation “Rank” is the current rank which can be cross-referenced to the “Score” column.  “Daily Change” is the change in score since yesterday (Wednesday).  “8/5 Change” is the change in score since 8/5.  “7/22 Change” is the change in score since the S&P peaked on, you guessed it, 7/22.  Also, each industry is color coded by sector.  Use this post for reference.

Observations:

  • two tech industries are leading the pack (Electronics and Internet)
  • Internet has underperformed the S&P since 7/22
  • Transportation, Real Estate and Wholesale are seeing relative strength on all time frames
  • Chemicals and Metals & Mining have underperformed since the outset of the correction, but have outperformed since last Friday.
  • Food and Beverage has a strong overall rank but has started losing ground in the very near term
  • Conglomerates, Materials & Construction and Manufacturing have sucked wind since 7/22 (and are 3 of the worst performing industries), but have actually outperformed since 8/5
  • Tobacco is the top overall industry, but is underperforming on both near-term time frames.

Now let’s take a look through some of the aforementioned industries to find some stocks to put on a watchlist.  The charts are weekly unless noted on the chart (i.e. $LSI is monthly)

Electronics

$LSI: The daily chart is a chaotic mess, but the monthly chart provides some clarity.  This one will remain on my list as long as it can stay above 6.50.  A break above 7.50 and this thing could be off to the races (it’s been knocking on the door a few times over the past 3 months)…next stop 10-11.

LSI 2011-08-11

Internet

$SINA: SINA’s place in my watchlist has been fairly consistent.  I think it’s just too volatile right now to play with.  Additionally, the trend on the daily looks like it’s headed lower.  Still, the weekly chart is intriguing.

SINA 2011-08-11

Transportation

$NSC: Still watching.

NSC 2011-08-11

Chemicals

$POT: Holding up rather well.  50 looks to be a key support level.

POT 2011-08-11

Metals and Mining

$MCP

MCP 2011-08-11

Again, what I’m just trying to do here is compile a manageable list of stocks to watch in the event that the market starts to bottom out.  I think we are in for some more “pain” in the coming weeks, so this list will likely be amended many times.  Feel free to follow me on Stocktwits for updates

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