Strong Day!
Once again a strong day.
Very strong action from cyc. Industry Groups, Tech behaved a bit weaker, but still o.k. after a weak outlook from Microsoft.
Every Ticker (!) you see here is outperforming the SPY (sorted by 66 Day Momentum):
What do you see (not the chart, the lists to the right)?
Well, everything flagged is higher beta or cyclical (which by itself is also a higher beta instrument, not as high as tech, but still) and a ton of higher beta is outperforming.
Why is this important?
If you want to time the market, you need to know factors that trend well.
NOT ALL FACTORS TREND WELL only a handful!
Factors that trend well are factors which when up 4 Weeks with momentum and relative strength (in pullbacks comes the truth!), they tend to go up further.
But what factors trend well?
Here we go:
So, it is important to watch: High Beta, Small caps, Long term reversals (I still do not have a tool for residual variance and still do not understand it, contact me to help out).
High beta can be a trading system on high beta stocks:
Watch the chart closely and see the higher high while the Nasdaq was flat:
Second watch higher beta industry groups (cycs and tech even more, in this example it is semiconductor equipment, here the chart template: https://www.tc2000.com/~XSmp5h):
Above chart (upper half): The red line is the relative strength of the underlying to the SPY. The blue line (upper half) is the 8 MA of relative strength. When you see the red line crossing up the blue line it means strength. The lower part: Blue line is the IG and the white line is the SPY. You want to see the blue line above the white one (also use weekly!).
Now the important part comes:
Do watch things that are significant. I see tons of charts on Fintwit where somebody is posting relative strength of a low beta stock (and low beta industry or whatever!).
That is not bullish it is bearish and at the same time low beta stuff is loaded with factors that do not trend well (like value). The stock pattern is more likely to fail because the stock loads factors that do not trend well!
There is a reason why CANSLIM traders concentrate on growth names (= higher beta!).
Again, the paper:
The list is sorted by signal strength.
So high beta is basically 4-5 times more significant than the value factor. It has 2 times more significance than small caps (the significance of small caps get much better if combined with value and momentum, I do not have a paper on that, but that is my experience of the last years).
To read the market tape I look at the following behavior:
High Beta Industry Groups: Cycs
High Beta Industry Groups: Tech (if both strong, you got something!)
High Beta Trading Systems (just as an addition, do not worry, IGs are fine for this)
HYG (if strong, not too much liquidity stress in the market).
SVIX (when volatility is getting crushed that sucker is outperforming the SPY)
Cyc. Countries (like China and Germany)
Breath (I love T2108 on TC2000)
Small Cap Value Momentum Systems
(right now, everything of the above is strong, besides breath is at resistance!)
What do I mean with behavior?
It needs to go up and it needs to be strong in pullbacks of the SPY.
Those are the semis before the market broke out:
The Spy was flat and the industry was acting strong in the pullback.
Of cause one strong high beta industry group is not enough. But there where a ton of higher beta industry groups that where strong, cycs and tech at the same time (bullish).
And there are key industries: I like Energy, Semis (I love Semis!) and Software.
At tops it is the other way around, especially when defensives start to lead get the hell protected!
Sorry for the rant.
Best regards and all the best!
Andreas
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