Category Archives: group and sector

A Bottom-Picking Portfolio

In a recent article I highlighted some stocks that appeared to have a chance of “putting in a low”.  In another article, I highlighted the potential usefulness of “horizontal lines” on a chart.  The phrase “putting in a low” is essentially a kindler, gentler version of the phrase “Hey, let’s pick a bottom”.
The reality is that the ability to “pick tops and/or bottoms” on any kind of a consistent basis is a skill that roughly 99.2% of all investors and traders do not possess.  That being said, there is such a thing as a legitimate “bottom formation” (at least in my market addled opinion).  A security that bounces several or more times off a particular price is sending information that the sellers may be running out of ammunition.  These levels can be observed by drawing horizontal trend lines across a price chart – connecting recent highs and/or lows at roughly similar prices.
“Loading up” in this situation is not recommended. But committing an acceptable percentage of one’s portfolio (a level which each investor must decide on their own) to such opportunities is a perfectly acceptable form of speculation.
So for arguments sake, below is a “Bottom Pickers Portfolio”.  As always, I am not recommending this as an investment, simply highlighting an alternative idea for your further consideration.
The Tickers
The tickers included in this portfolio are mostly all commodity related.  That is not a purposeful choice; they simply “fit the model”.
First is ticker BAL – an ETF that tracks the price of cotton futures.  The critical level for BAL is roughly the $43.50 area.
1Figure 1 – Ticker BAL (Courtesy AIQ TradingExpert)
Ticker GDX tracks a gold stock index and has been consolidating in a relatively tight range after last year’s sharp rally and subsequent pullback.
2Figure 2 – Ticker GDX (Courtesy AIQ TradingExpert)
Ticker JO tracks the price of coffee futures.  This is one of the weakest charts on the list and is dangerously close to failing to the downside.  However, if the low holds this will strengthen the outlook a great deal.
3Figure 3 – Ticker JO (Courtesy AIQ TradingExpert)
Ticker SGG tracks the price of sugar futures. SGG has been consolidating in a narrow range for about four months.  Key price levels on the downside are $26.50 and the August 2015 low of $24.79.
4Figure 4 – Ticker SGG (Courtesy AIQ TradingExpert)
Ticker SWN is Southwestern Energy Co.  After a long, devastating decline the stock is attempting to form a low in the $5 a share range.
5Figure 5 – Ticker SWN (Courtesy AIQ TradingExpert)
Ticker UNG tracks natural gas futures.  Thanks to the advent of fracking – which is made natural gas abundantly available – the price of natural gas has collapsed in recent years.  In the past week it retested its 2016 low and then ticked higher.  Like JO, this one is precariously close to “failing”.  But for now…
6Figure 6 – Ticker UNG (Courtesy AIQ TradingExpert)
The Bottom Pickers Portfolio                      
I use AIQ TradingExpert software to create my own “Groups”.  So I created one called “Lows” to include the six tickers above.  The group consists of an equal dollar investment in each ticker.  The chart for this combination of tickers appears in Figure 7.EDITORS NOTE: Creating your own groups is accomplished in the TradingExpert Data Manager information can be found in this article ‘Adding groups and sectors to your Group/Sector List’

7Figure 7 – The “Lows” Group (Courtesy AIQ TradingExpert)
Summary
Let me be blunt.  There is every chance that the majority of the tickers highlighted above will continue their long-term bearish trends and break down to the downside causing further losses for those holding these shares.
The primary thing to highlight in this piece is a personal preference.  I prefer “horizontal” lines on a chart – i.e., straight across, left to right – to the more typical slanted trend lines that most traders use.  The reason is simply – upward or downward slanting trend lines require a trader to decide which two (or more) highs (or lows) to connect in order to draw the trend line.  At the end of the day this is often a subjective decision.
Horizontal trend lines – which connect to (at least roughly equal) highs or lows – are generated by the market itself and as such, are more objective in nature.  In other words, investor buying and selling determines these levels.
Will my “Bottom Pickers Portfolio” move to the upside or fail to the downside?  We’ll just have to wait to find out.
Jay Kaeppel Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro client.
Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

Adding groups and sectors to your Group/Sector List

Adding groups and sectors to your Group/Sector List

If for some reason you want to add to the Group/Sector List delivered with the system, TradingExpert Pro provides the necessary functions.

The procedure for adding to your Group/Sector List is as follows:

1. Add any new stocks to the Master Ticker List

2. Add new group tickers to the Master Ticker List.  

3. Add new sector tickers to the Master Ticker List.

4. Add new sectors to the Group/Sector List.  Under each new sector, insert the groups that will make up that sector.

5. Add new groups to the Group/Sector List.  Under each new group, insert the stocks that will make up that group.  

6. Use the Compute Group/Sector Indices function to compute indices for the new groups and sec­tors.

7. Use the Set RS Symbols function to set relative strength relationships.

Can a ticker be entered in more than one group?

TradingExpert Pro allows you to enter a ticker in more than one group.  For example, you may want to follow an index of locally-owned companies by placing them in a newly created group.  One of those companies could be a computer software development company that you would want to include in an industry group of computer stocks.  You can enter an eq­uity into as many user created groups as you want, but it is  important that you do not enter these user created groups into sectors.  Only principal industry groups should be collected into a sector.

Adding a new sector to your Group/Sector List

Proceed as follows:

1. First, add a new sector ticker to your Master Ticker List.  Click the Ticker command on the menu bar.  Then click New to display the New Ticker dialog box.  

2. Enter a ticker for the new sector, then be sure to enter the proper Type designation (sector).

3. Click OK, and the second dialog box for entering a new ticker appears.

4. Type in a name (Description) and the First Date of data.  The remaining default settings on this second dialog box can remain the same.

5. Click OK, and the new sector ticker will be added to the Master Ticker List.

6. Insert the new sector ticker into your Group/Sector List by doing the following:

Display the Group/Sector List in the left (List) window by choosing its name from the Selected List text box on the toolbar.

Highlight the new sector in the Master Ticker List by clicking on its name with your mouse.

Again using your mouse, click the name of the master sector in the List window.

Select the Insert Ticker(s) command on the List sub-menu or click the Insert to list toolbar button.

7. Before inserting groups under the new sector, be sure to create any new group tickers and add them to the Master Ticker List.

8. Insert all of the groups that will make up the new sector by doing the following:

Select in the Master Ticker List all of  the groups you want to add by simply holding down the Ctrl key while clicking each group.

Again using your mouse, click the new sector in the Group/Sector List under which you want to insert the groups.

Select the Insert Ticker(s) command on the List sub-menu or click the Insert to list toolbar button.

Adding a new group to your Group/Sector List

Follow these steps:

1. First, add a new group ticker to the Master Ticker List.  Click the Ticker command on the menu bar.  Then click New to display the New Ticker dialog box.  

2. Enter a ticker for the new group, then be sure to enter the proper Type designation (group).

3. Click OK, and the second dialog box for entering a new ticker appears.

4. Type in a name (Description) and the First Date of data.  The remaining default settings on this second dialog box can remain the same.

5. Click OK, and the new group ticker will be added to the Master Ticker List.

6. Insert the new group ticker into your Group/Sector List by doing the following:

Display the Group/Sector List in the left (List) window by choosing its name from the Selected List text box on the toolbar.

Highlight the new group in the Master Ticker List by clicking on it with your mouse.

Again using your mouse, click the sector in the List window under which you want to insert the new group.  If the list is fully contracted, you may need to use the Expand Level command on the List sub-menu to display all of the sectors.

Select the Insert Ticker(s) command on the List sub-menu or click the Insert to list toolbar button. 

7. Before inserting stocks under the new group, be sure to add any new stocks to your Master Ticker List.  

8. Insert stocks by doing the following:

Select in the Master Ticker List all of  the stocks you want to add by simply holding down the Ctrl key while clicking each stock.

Again using your mouse, click the new group in the Group/Sector List under which you want to insert the stocks.

Select the Insert Ticker(s) command on the List sub-menu or click the Insert to list toolbar button.

Computing indices for a new group or sector

Following your next data retrieval, the group and sector in­dices will be automatically computed.  However, when you add a new group or sector to your Group/Sector List, and you want to see an analysis at once without waiting for your next data retrieval, you can use the Compute Group/Sector Indices function to create the index.

To use Compute Group/Sector Indices:

1. Click Utilities on the Data Manager menu bar to display the drop-down menu.  

2. Select Compute Group/Sector Indices from this menu.  The Compute Group/Sector Indices dialog box appears.

3. In the Source section, click the option button for Selected Group(s) Symbols, then select your new group or sector in the text box.  Check to compute both Parent and Child symbols.

4. In the Range section, select the first option, Update from Last Date of Data.

5. Choose OK.  The computation will begin.

6. After you have computed group/sector indices, you should execute the function Set RS Indicators.

Setting relative strength relationships 

This function sets your relative strength indicators to conform with parent/child relationships.  Then, when you are working in Charts, you can easily see the relative strength of the stock vs. its parent group, a group vs. its parent sector, or a sector vs. the master sector.

To set Relative Strength Indicators:

1. Click Utilities on the Data Manager menu bar to display the drop-down menu.  

2. Select Set RS Symbols.  Then select Set RS Tickers.  The Set RS Tickers dialog box appears. 

3. Click the name of your list in the Selected Lists text box.

4. Click the first option, Set Relative Strength Relationships (overwrite).

5. Choose the OK button.

Building a new Group/Sector List

If for some reason you would want to build a new Group/Sector List, first create a new list and master sector, then follow the procedure above for adding groups and sectors to the list.

U.S. Stocks Lead, World Lags (Part II)

In my last piece I note that the U.S. stock market presently stands alone in terms of recent performance. While virtually every major U.S. stock market average has run to new highs in the last several weeks, not one other individual country has really even come close. While this might induce spontaneous chants of “USA, USA”, the truth is that this may not necessarily be a good thing.
This current disconnect will likely be resolved in one of two ways:

A) The USA will drag the rest of the world screaming and kicking to enjoy in our newfound prosperity (assuming of course that we finally stumble upon that actual newfound prosperity that the stock market is telling us we should be celebrating).
B) The USA fails to pull up the rest of the world and the US stock market gets “dragged down” with the rest of the world’s bourses.
This is the part in the article where a skilled market analyst would offer up a clear and concise opinion of what will happen next and why. And if one happens to stop by the office in the next few minutes or so I will ask him or her what they think. All I know is that at the moment the US stock market is in an uptrend and that the majority of the rest of the world’s stock markets are fair to middling at best (with many looking much worse).
Until something changes I will stick to the US market, thank you very much.
A Little “Worldly” Perspective
What follows is essentially the world (stock markets) in pictures. The purpose is simply to provide you with some perspective regarding the state of the markets around the globe.
The key thing to note is:
*Figure 1 shows U.S. stocks making new highs
*Figures 2 through 6 show the rest of the world’s stock markets lagging far behind
Click Figures 1 through 6 to enlarge
1
Figure 1 – U.S. Stocks soaring to new highs (Courtesy AIQ TradingExpert )
2
Figure 2 – My Own Index of Single Country ETFs; -17% below 2014 high (Courtesy AIQ TradingExpert )
Editor’s note: information on creating your own index of ETFs or any other tickers in TradingExpert can be found here http://www.aiqsystems.com/Feb06%20OBM.pdf on page 5, titled Ability to Create Industry Groups for Your Special Trading Needs….
In Figures 3 through 6 note that the overall “stock market malaise” is not limited to one portion of our earth, but rather stretches pretty far East, West, North, South and pretty much all points in between.
3
Figure 3 – Middle East Stocks; -40% below 2007 high (Courtesy AIQ TradingExpert )
4
Figure 4 – European Stocks; -36% below 2007 high (Courtesy AIQ TradingExpert )
5
Figure 5 – Asia-Pacific Stocks;-17% below 2014 high (Courtesy AIQ TradingExpert )
6
Figure 6 – North/South America Stocks; -22% below 2011 high (Courtesy AIQ TradingExpert )
Wishing you (please choose any or all of the following that are applicable):
*Merry Christmas
*Happy New Year
*Happy Holidays
*Joy
*Peace on Earth
*[Some other phrase that you do not find offensive here]

 

Jay Kaeppel

Chief Market Analyst at JayOnTheMarkets.com and AIQ TradingExpert Pro ( AIQ Systems) client. http://jayonthemarkets.com/

It’s all relative you see

The markets have been shall we say been less than inspiring recently. Brexit came and went with a brief hiccup in the action and only in the last week or so has the volatility picked up. The Dow as you can see in this weekly chart is back the same level as December 2014

 

 

The VXX shows clearly the decline in volatility since the high back in 2011

 

The summer doldrums may be over, but during periods when the market is range bound, segments within the market are often performing very well or very poorly. One AIQ Report that can show the strength within segments is the Relative Strength Strong – Short Term. This report shows stocks in 3 month trend up and is a great report for those who trade with ‘the trend is your friend’. Here is Friday 9-16-2016 report. The report is ranked by the stocks with the best trend.

 

 

I highlighted 6 stocks in the top of this report. All have good trends in place, and all in the Oil and Exploration S&P 500 group. The group has performed quite well recently. The top 2 OILEXPO stocks CHK and DVN have both had a small pullback to their uptrend line. We’ll see how they do this week.

 

Why a fine-tuned Group/Sector structure is essential for identifying good trading opportunities

Index Methodology Overview

This paper was prepared to assist subscribers/investors with an understanding of the investment concepts behind the construction and use of the FATI® Sector/Group Index.


Key Concepts


Data Dependence

The investment world is more data dependent today than ever before. This applies to both technical or fundamental data. The individual stock universe is comprised of approximately 16,000 stocks, of which 8,000 have quasi-reliable technical and fundamental data available. Even a universe of 8,000 stocks is extremely large and very hard for any investor to manage.

One of the risks with large amounts of data, of any type, is its quality. If we use low quality data, it could create incorrect outputs used in your investment decision process. There is an old adage that applies here and most have heard it before: Garbage In – Garbage Out. The quality of data and the ability to manage this data is paramount in the investment management process.

Sector/Group Structure

Many of the available Sector/Group Indices have, what is called, ‘limited participation’. Some of the industries groups contain only one or two stocks. The FATI® Sector/ Group Index is designed to maximize the number of issues in each industry group. For example, a major index provider has an index with 60 industries and an average of 8.3 stocks per industry. If you look closely you will find over 10% of the industries are comprised of only one or two stocks. Hardly a representative sample. The FATI® Sector/Group Index averages over 44 stocks per industry and no less than 6-7 stocks on average in an industry group. This gives investors a more accurate representation of each industry. The index also broadens the number of sectors from the industry average of 10 to 17 sectors. This was done to improve the granularity of the index and make it easy to identify investment opportunities.

Influential Factors on the Markets

It is a well-known fact approximately 90% of the volume in the equity markets come from institutional investors. These investors include mutual funds, pension plans, insurance companies and hedge funds Due to the large size of the portfolios they manage, it may take weeks, if not months; for them to build a position in a stock. Remember, these investors try to buy or sell in a stealth manner to avoid tipping their actions and having the price pushed up or down before they have finished acquiring or disposing a position.

Since institutional investors have such a significant influence on the market, it only makes sense to focus on the stocks they watch and trade. We conducted a poll to determine if there were a common, and simple, set of criterion which could be used to narrow a list of over 8,000 stocks. At the same time, try to determine what the average investment manager’s universe of stocks is comprised of. Institutional analyst’s standards are high when it comes data requirements. If those standards are missing from the data of a company, they won’t consider the company for investment potential. Remember Data Dependence from above. ‘Garbage In – Garbage Out’.

The Search


The Poll and Results

The poll was conducted from a random list of investment managers. Armed with the data collected from the investment managers a plethora of test screenings were performed. Each screening was reviewed to determine the data available, data completeness and data quality, both fundamental and technical. After exhaustive testing, a final list of criterion was selected. The final screening using the selected criterion was performed and compared to several investment manager’s universe of stocks. The results showed, on average, the final screen captured 86% of their universe of stocks. Some higher some lower.

Below is the final criterion used in the construction of the FATI® Sector/Group Index.

  • Average Daily Trading Volume >= 100,000 shares
  • Current Price >= $5.00
  • Number of Analysts in Average Broker Rating >= 2
  • Market Cap Valuation >= $100 million

The index is updated once a month using the criterion listed above. In any given month as many as 20-300 stocks may be added and/or deleted from the index. The number of issues in the index has ranged between 2,500-3,000 stocks. By narrowing the number of stocks in this manner, the fundamental and technical data was more plentiful, more accurate and more complete.

Putting it All Together

Knowing the key concepts and the criterion used in the construction of the FATI® Sector/Group Index, let’s put it all together and answer the question.

Why Use the FATI® Sector/Group Index?”

The index provides investors with:

1. a list of stocks institutional investors watch and trade.
2. a higher quality Sector/Group structure for better investment decisions.
3. market capitalizations ranging from Mega Caps to Nano Caps.
4. the elimination of low priced / low quality stocks with poor quality data.
5. simple maintenance of the index and fundamental data. Download and Use.


One Last Thought

There are two generally accepted approaches to investing. Fundamental and Technical. Which is better is not up for debate here, but instead consider the following;

Fact, the majority of institutional investors purchase companies based upon strong fundamentals and earnings.

Professional Traders focus on technical indicators, patterns and news events to determine when to buy or sell a stock.


Why choose between two methodologies?

Don’t, use both.

First, use the FATI® Sector/Group Index to focus on the stocks institutional investors are watching and trading. Next, screen for companies in the Index with strong fundamentals and earnings. Lastly, use technical analysis to determine when to buy or sell the fundamentally screened stocks.


FATI® Sector/Group Index
+
Fundamental Data
+
Technical Analysis
=
MORE PROFITS


Find out how you can add FATI® Sector/Group Index + Fundamentals  to your trading arsenal

or call sales at  1-800-332-2999