It's that time again. Every few months, I like running this
screen to find the new Top Sectors. And now it's especially timely
after this recent pullback, which really wasn't that big a deal,
but where more and more people are saying that we're looking at a
So, that being the case, it's important to see what new sectors and
industries are being rotated into.
And since roughly half of a stock's price move can be directly
attributed to the group that it's in, it's important to stay on top
By definition, a strong Sector or strong Industry will have more of
its companies moving higher than a weak Sector or weak Industry.
If the majority of stocks are going down in an industry, it can't
be a strong industry. If more stocks are going up, it is a strong
I've done some testing over the past and what's interesting is I
found that just getting into an average stock in a strong group
will often outperform the best stocks in a troubled group.
Put the Odds on Your Side
Just because stocks in the best groups have a tendency to
outperform doesn't mean you can just pick anything and make money.
Far from it. But it illustrates how powerful the underlying group
is to the success of your stock picking.
There are several ways you can define the best Sectors or
One of my favorite ways is to look at the percentage of stocks
trading within 10% of their 52-week highs.
Specifically, I'll calculate the number of stocks trading within
10% of their 52-week highs and then divide that by the number of
stocks in their group to get a percentage. The higher percentage of
stocks trading near their highs, the better the group will score.
Some people like looking at the percentage price change over the
last 12 or 24 weeks. And that's fine, but I don't think it's
If a group has been outperforming over the last 12 to 24 weeks, but
then has a significant correction, it might still be ranked a top
group because the gains were so large in the first part of the 12
or 24 week period that even a large pullback over a span of many
weeks can be lost within the larger run-up that preceded it.
But by checking their position in comparison to their 52-week
highs, a simple 10% pullback from their 52-week high will show up
right away. And if more and more companies within that group are
pulling back from their highs by more than 10%, it'll be reflected
in that Sector's rating and alert the investor that something
systemic might be happening to that group as a whole rather than
something that's just stock specific.
Groups with a higher percentage of stocks trading at or near their
52-week highs shows something positive is happening to the entire
5 Top Groups and 5 Top Stocks
Currently, the top 5 sectors are:
1) Conglomerates - 70.2%
2) Auto-Tires-trucks - 57.9%
3) Transportation - 55.3%
4) Finance - 54.7%
5) Aerospace - 54.1%
And here are 5 stocks, each from one of the top five sectors:
All of these stocks are in the top Sectors as we've defined them
and they are all on the move.
Start picking stocks in the best Sectors and Industries on your own
today. It's easy to do with the Research Wizard. Start putting the
odds of success in your favor. You can do it. Learn how today.
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Investment Research may own or have sold short securities and/or
hold long and/or short positions in options that are mentioned in
this material. An affiliated investment advisory firm may own or
have sold short securities and/or hold long and/or short positions
in options that are mentioned in this material.
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