In Friday's trading meeting (video here), we performed a multi-time frame sector relative strength analysis. vs. the SPY to help shape our directional opinion of various parts of the market. . As usual, we started with the market itself , assessing its likelihood for further advancement with a check on the Powerbars and moving averages. Then we turned our attention to market sectors. For Powerbars, which are weighted heavily in terms of fundamentals, we look for an aggregate ratio of bullish vs. bearish stocks be be OVER the powebpar ratio of stocks in the SPY to consider any sector bullish.
- For bullish option trades, which play out over approximately 45 days, we look for the 1 month AND he 3 month performance of the underlying sector to be OVER the performance of the SPY in each ftimeframe. So an OVER rating in Powerbards, 1 Mo and 3 Mo would prompt us to look for short term stock trades, long call options or short put vertical spreads or naked long call trades.
- For bullish trades that play out over the course of many months, we look for OVER performance vs. the SPY in the 3 and 6 month time frames and in the Powerbars. The Power Gauge itself is meant to be predictive of an underlying stock's performance vs. the market over the coming 3 to 6 month. So "Over" scores across the board in the chart below, would prompt us to look for trend trades in stocks, sold put or long call diagonal trades in options.
- We simply reverse our thinking for bearish trades. But, with the overall market itself bullish right now, we have bullish bias in our overall portfolio. Energy and Real Estate stocks, weak in all time frames and Powerbar ratios weaker than the market look like the best bets for any counter trend trades.
- Right now, Utilities and Tech are strong in all key time frames and attractive for bullish trades The next step is to look at underlying industry groups, then underlying stocks to populate a watchlist of uptrending stocks. Then we wait for signals to pull the trigger.
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