There are two approaches to trades:
Trading isn’t easy. But trading WITH the market or a sector, whether it’s rising or falling, and not fighting the current, is certainly less difficult.
Extra! Extra!! The market’s changed in the last couple of weeks. Previously there was clear strength at the top with only minor weakness below. But there’s now widening gaps between strong and weak sectors, although it’s not immediately obvious. But with a little help of knowing what to look for and how, and knowing how to use our trading platform to greatest effect, it’s pretty obvious.
Looking at last week, it seems nothing was especially weak, with utilities (XLU) barely below break-even:
Materials (XLB), utilities (XLU) and the transports (IYT) were weakest the last 4-5 weeks: XLB down over five percent; XLU and IYT down over three percent.
Today (6/28/21), energy (XLE) cracked a bit, falling by over three percent today, while everything else held up:
To help piece together the puzzle we look at charts and a couple of enhancements to alert us to key market changes. For this we use moving averages (MAs) like trend lines, except MAs correct and adjust over time, making them (in our opinion), better than trend lines. We view them in varying periods to assess short-,medium-, and longer-term trend and momentum based on the bar-number selected for the MA. We then look at how price interacts with the MAs, if they are upward or downward sloping and to what degree, if price is above or below the curve, etc. to determine if price is moving with the MA (i.e., with the trend), or against it (countertrend). We do this for broad markets, sectors and industries, and individual symbols. While the concepts are simple, we’re always grateful for platform help to reduce the manual scanning required.
Well, hooray! Our platforms offer nice features to help us see things. To be clear, we’re not looking for magic indicators to steer our decision making. Rather, we use simple platform tools to highlight the things important to our decisions, like here with our moving averages.
There’s nothing magic above. It’s our sector ETF list that tells us:
This simple visualization tool directs us to symbols where there is a higher likelihood we’ll find our key setups with a higher probability of a successful trade.
We can see above there are clear pockets of weak and weakening sectors, while others are remaining strong. We didn’t see this a month ago. It was basically a sea of blue in our Moving Average Pressure scan indicator. But that was then.