Sector performance - a worthwhile criteria?

Blogsy · 9 July 2008

Hi guys,

Mid-term lurker, first-time poster. Trying to suck as much wisdom out of this site as I can (hopefully not sucking up any crap with it... what am I saying, this site is 100% crap-free! ) and put together some sort of trading system I can start to play around (testing-wise for the time being). The first step that I've got is to compare sector performance - that is, to find the best performing sector (or two) within in the last 1-3 months and pick stocks from those indices. The logic behind this is that you'll have a better chance finding better-performing stocks in better-performing sectors. While that seems to make sense to me, being a complete market newbie the facts of the matter may be different - hence my questioning if this is a valid step?

Hopefully this will be the first of many questions I have for the collective experience and knowledget that is ASF... thanks for the helping hand!

tech/a · 9 July 2008

Blogsy said:
Hi guys,

Mid-term lurker, first-time poster. Trying to suck as much wisdom out of this site as I can (hopefully not sucking up any crap with it... what am I saying, this site is 100% crap-free! ) and put together some sort of trading system I can start to play around (testing-wise for the time being). The first step that I've got is to compare sector performance - that is, to find the best performing sector (or two) within in the last 1-3 months and pick stocks from those indices. The logic behind this is that you'll have a better chance finding better-performing stocks in better-performing sectors. While that seems to make sense to me, being a complete market newbie the facts of the matter may be different - hence my questioning if this is a valid step?

Hopefully this will be the first of many questions I have for the collective experience and knowledget that is ASF... thanks for the helping hand!

Known as the top down approach.

Only probelm with it in the real world is that by the time its clear that a sector and its constituents are out performing the market the advantage has in the most part been spent!

Now finding an EMERGING sector and performers---lies some hope!

AlterEgo · 9 July 2008

tech/a said:
Only probelm with it in the real world is that by the time its clear that a sector and its constituents are out performing the market the advantage has in the most part been spent!

What about the run that resources and energy have had (until recently)? That was pretty apparent that they were out performing the market a long time ago. There was plenty of time to profit from that.

MichaelD · 9 July 2008

All I ever managed to find was a barely significant edge in the Materials & Energy sectors - possibly artefactual.

AlterEgo · 9 July 2008

MichaelD said:
All I ever managed to find was a barely significant edge in the Materials & Energy sectors - possibly artefactual.

What sectors were you trading? I've traded very little else in the last couple of years!

Trembling Hand · 9 July 2008

2 things. the ozzie market is hardly a huge diverse monster. There is not much to sort through. There is even less data on sectors. Unlike in the US where there is 100 or more sectors and sub industries and ETF's that you can sort through.

The second thing is if you use the ASX sectors you are just really comparing how BHP is doing against WPL against WOW against CSL against TLS against BXB etc Its just too thin after the top 10 or so.

I think its an intellectually appealing approach but not suited to oz.

nizar · 9 July 2008

Blogsy said:
Hi guys,

Mid-term lurker, first-time poster. Trying to suck as much wisdom out of this site as I can (hopefully not sucking up any crap with it... what am I saying, this site is 100% crap-free! ) and put together some sort of trading system I can start to play around (testing-wise for the time being). The first step that I've got is to compare sector performance - that is, to find the best performing sector (or two) within in the last 1-3 months and pick stocks from those indices. The logic behind this is that you'll have a better chance finding better-performing stocks in better-performing sectors. While that seems to make sense to me, being a complete market newbie the facts of the matter may be different - hence my questioning if this is a valid step?

Hopefully this will be the first of many questions I have for the collective experience and knowledget that is ASF... thanks for the helping hand!

I think there is merit in a sector-based approach, though I haven't seen the evidence.

Unfortunately earlier in the year when I asked S&P for some data (I wanted data for about 20 sectors from year2000 until now, with every quarterly update) for testing purposes, they told me it would cost in excess of $15,000. A bit too much for what i was willing to spend.

Sakk · 10 July 2008

I agree with Trembling Hand that sector analysis in the oz market is quite useless. I trade the US and do use sector analysis however in a mechanical approach.

I scan the subsectors looking for a buy/sell signals first, then scan within the group with the same buy/sell signal. If several stocks come up I filter using relative strength and price action.

Bottom up spits out too many candidates and further filtering is a pain.

Here's a sample of sector giving a signal followed by a couple of stocks that also gave the same buy signal.

AlterEgo · 10 July 2008

Trembling Hand said:
The second thing is if you use the ASX sectors you are just really comparing how BHP is doing against WPL against WOW against CSL against TLS against BXB etc Its just too thin after the top 10 or so.

Well yes. The ASX indices aren’t really much use. I use a bottom-up approach, scan the whole market for what stocks are outperforming. What I usually find though is that the outperformers at any given time are mostly from the same sector. And often in a very specific sub-group of that sector. So that tells me that sector/sub-group is the one to concentrate on.

Sakk · 12 July 2008

Update of the two stocks above. Currently in ANR

ANR and CNX

Blogsy · 22 July 2008

Thanks guys. It's probably not useful for the ASX, but sector-based performance definitely looks to have potential on the bigger exchanges. A pity I'm sticking with Australia for the time being... thanks again, off to work on some workable bottom-up filters (though from first impression they do churn out quite a few candidates - will have to tighten that up).

Sector performance - a worthwhile criteria?

Blogsy

tech/a

No Ordinary Duck

AlterEgo

MichaelD

Not fooled by randomness

AlterEgo

Trembling Hand

Can be found on the bid

nizar

Sakk

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Sakk

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Sector performance - a worthwhile criteria?

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