RE: Irby's questions
here are some questions:
1) Assuming the leader of each industry is the leading indicator for that group, what is the correlation within the group?
-->Correlation, whether it be negative, positive and the strength of the correlation is something that makes this system work or not work. Get it wrong and you end up wondering why when dell went up and you bot MUEI, you lost but dell went to new highs.
is this something that you have found works consistently?Do you follow the fundamentals of each stock within the group so that you know which stocks will move in sympathy with the group leader?
I don't have any thing perse that I follow outside of experience from watching stocks print. For example, in the hard drives, QNTM is without at doubt far more volatile than WDC or SEG. So if QNTM is up 2 and WDC up only 3/8, I would NOT expect to see WDC bridge the gap. MRK and pFE i find to move tick for tick.
2) Do you use this strategy to Day Trade or Position Trade?
I find it most useful for daytrading. I will though for longer term trades, after I have done my research and I am interesting in zyx company, put up all of xyz's sector members and when I start to see action i like in the sector (even if its not my pick) i might use it as a buying opp for my pick.
3) How do you tell when money is flowing from one sector to another?
I know this sounds simplistic but, you can see it watching the stocks, looking for green stocks instead of red, stocks that are moving from up 1/4 to 1/2 instead of up 1/2 to 0. If I saw DELL green and HWP, CPQ, MUEI, IBM, all red, I would not extrapolate that money was moving into the sector.
4) Do you watch the industry indices rather than the stocks within the groups to determine what is moving and what is not?
I cant stress enough how unrepresetative the Dow is. The sp500, ok, good sampling, but how many days have the indices been on a tear and I make no money. I sometimes swear my stocks are contrarian indicators....lol! Anyway, I watch the indices because everyone else does. Everyone else sees GE, IBM, MRK selling off and they start putting selling pressure on everything so its important but not critical to watch the averages. I watch the TRIN and tick religiously.
5) Do you follow the charts of the individual stocks within the groups to know what the support/resistance zones are for each stock?
I am not a big tech analyst but when I am buying a position for a few weeks, months or year, I will look to see its performance, volume, stochastics and moving averages...why? because others are and historically, technical analysis has gotten it right, so why not? afterall, if there are tons of stocks outthere, and I like XYZ, but XYZ looks like its in a freefall and far from support, why not look to something else. When it all comes together, the fundamental analysis, tech analysis, the prints and market action, thats when I might be a buyer.
This for me applies more to longer term positions. Day trading , for me, is sometimes wild gunslinging. Sometimes I'm just staring at the screen, happen to catch a few prints on xyz and I buy it. Thought process - 5 seconds......sometimes...
Longer term stuff, you have to be more analytical since you could wake up with an OXHP on your hands.
6) Do you think this strategy could be used for one industry group only? such as technology?
7) Would you employ this strategy only with groups that tend to be moving in sympathy with the market?
Correlation of a sector move to industry is important to understand. Correlation between sector move to interest rates, political environment etc. is always important. I wouldn't simply employ strategy that moves in sympathy but would simply suggest that you try to fully realize the correlation of the sector to the rest of the market, interest rates, political, etc. whatever the correlation, 1 or negative 1.
Speaking of correlation, and I amnot statistician, but I believe the numbers can be expressed such as 1 to -1.....1 is that it moves directly in line with the market (other variable)....2 would be that it moves 2x the market...-1 moves oppostive the market...-2 moves 2x opposite the market....
8) Would your exit strategy be centered around the stock itself, the overall market, or both?
Both...somehting could be great, but if the market is tanking, sit on the sidelines, buy time and wait for the bounce.
Regards,
Steve@yamner.com |
