Stock Screening | Identifying Strong Sectors - Tip

12th Jan '22 by Breakout Trader

21 comments 1049 reads

Hi All,

A little check I've been using recently, which some may find useful.

Very often, you'll hear successful traders talking about "buying the best stocks in the leading groups". i.e. follow the money and the trends, buy into strength.

One way I've found of helping to identify the leading groups and sectors is in the browse --> Sectors Section on Stocko. I set this to 'industry groups' to be more specific, and filter by the number of 52w highs.

Stocks breaking out to new 52w highs are by definition acting strongly.

As per the example below, you can see that this method would currently point you towards Banking, Mining and Oil and Gas stocks - all of which are doing well.

This isn't just retrospectively useful - the same filter pointed towards these sectors in previous weeks, before some of the recent moves (HSBC, lloyds, Rio Tinto, BP for example).

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WarrantStar

13th Jan '22

Thank you for posting your idea. It looks like a good process to me and I will look further into it.

greyster

Thank you for suggestion. I am marginally overweight in Tech and healthcare, and so will look at some of the sectors you highlight. Considering PCFT, BRWM and some of the IG UK 350 sector composites in my spread bet account.

Hi Breakout Trader

Please can you give us some indication of how successful this approach has been for you, and what would your typical holding period be?

Rusty2

Thanks BT, not looked at this before. I agree with Banking and O&G but Miners is less clear with 123 new highs but 89 new lows. I will have a look at Textiles, not sure which stocks are in there. I had a look but not getting anything like your figures, are you just using UK region or worldwide?

Do you use 52 Week High Momentum screen?

ForAFewDollarsMore

Thanks BT, I agree that this is a good idea.

Breakout Trader

14th Jan '22

I have a uk and us subscription on here, so could be that the us stocks are missing from your screen,

I don’t use the 52w high momentum screen, I guess that would show stocks from all sectors.... The idea of this method is to identify which sectors are performing best, and focus on stocks within them.

Hi Warrantstar,

As mentioned, I’ve only recently started using this check, but it has got me into some nice trades.

This year I’ve switched to using weekly charts, to minimise noise and day-to-day fluctuations. My basic approach is to look for optimal entry points (typically breakouts from consolidations), and use the 5 or 10 period ma as a trailing stop (a weekly close below would trigger the sell).

I’ll post a couple of snapshots of trades I’m currently in, in these ‘hot’ sectors.

The Phoenix

Hi re the moving average which one is the stop point 5 or 10 and do you use sma or ema stats ?

Thanks

Andy

Some examples here - oil and gas and banking have had a very strong couple of weeks, I’m expecting a consolidation or pullback soon, but I do think they’re well placed to have a good few months. Ideally I’m looking for them to hold the 10 period moving average for a while.

These are trades which are acting well at the moment, and the idea of getting into strong sectors is to find breakouts which act like this, rather than popping and dropping, which is more likely if the sector as a whole is weak.

Hi Andy - these are sma’s.

The choice of using 5 or 10 really depends on the stock. It’s useful to look at past moves and see if the stock has historically respected either of them.

10sma is generally more significant, and is the average which Stan Weinstein recommended using, but 5sma will get you out for more profit if the stock does start a meaningful correction.

It’s subjective, but the important thing is to be decisive. For a given holding, decide which average will be your sell trigger, and stick to it.

Revs8

Hi Breakout.

Thanks for these nice examples. I do much the same but with a little more gut feel.
Your combination of weekly periods, strong sectors and the trailing stop is really sweet. I’m going to reassess my trading bringing in these rules.
Nice one.

15th Jan '22

Thank you for your further information. I am going to do some more process development on the idea of picking industries which are performing strongly, and how to select the best companies in those industries. Then I will set up a "Fantasy folio" to test how well the approach might work for me.

Thanks, yes I only have the UK region, so far fewer results. Is there not a danger of applying what’s happening in the US to the UK market, as there are vastly more US stocks, when the sectors maybe behaving differently?

On the 52 week high screen you can easily see which sectors are getting the most new highs.

BnB

Is there not a danger of applying what’s happening in the US to the UK market, as there are vastly more US stocks, when the sectors maybe behaving differently?

Sector momentum is pretty global. Tech and health down, banks and energy up currently.

If you plan to invest this way, it’s probably easier to just pick representative sector ETFs and swap between them as you sense momentum shift. No need to worry about individual company research because you aren’t trying to own the businesses, only the momentum!

I think it’s a valid approach and my investing would have been MUCH more profitable if I had followed this approach over the last two years.

Hi BNB,

ETFs would give some diversification across the industry. But, generally the approach outlined by Breakout Trader is one of momentum. So, if one believes in momentum, then as well as using it to pick the best performing industries, it would be consistent, and hopefully more profitable, to also use momentum to pick the best companies in the industry to invest in. I hasten to add that I have not yet done this! But will do so if my fantasy / test portfolio based on this approach works out well.

I think that’s an unnecessary complication. If you’ve picked the right sector just enjoy the gains and don’t overthink it. On individual stocks relative to their competitors you’ll possibly be wrong as often as you are right, whereas picking the optimal sectors is as easy as reading the abundant market commentary from observers better qualified than you or me! Good luck with the approach anyway.

I had a look at UK only and the figures are vastly different from the ones inc. US. Looks like all UK sectors are going down, most sectors have more 52w lows than highs, more declines than advances. Possibly because of the many small caps that have been sold off in the last few months.

Some sectors such as Oil and commodities I would expect to be global but not so sure about others, some tech stocks in the US have been hammered lately but not seeing that here so much.

DWit199

These are the average Stocko momentum scores by sector for the companies in my investment universe that I have been tracking since March. My universe is FT All share, FT Fledgling and AIM >£35m excluding REITS and ITs. I find these little chartlets quite helpful to see the momentum trends across the market. (on a pc right click and open image in new tab to see more detail)

The bar chart below is the current situation.

Hi is it possible to get the above bar charts off of Stocko directly or are you using different software ?

I have a database of weekly data from Stocko for companies in my investment universe. The charts are created in Excel from that data.

Identifying strong sectors - Tip

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Breakout Trader

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