Sectors Before Stocks
Duke Heberlein is
on vacation. Michael Brooks wrote this article.
Keeping an eye on the information scrolling across
“TradersWire”
can often alert you to opportunities in individual stocks as well as strong and
weak sectors. It’s always a good idea to take a top-down approach when selecting
your trades. When searching for shorts, look for weak sectors and then for the
weakest stocks within that sector. This will not guarantee a winning trade but
it will certainly put the odds heavily in your favor.
The “Applet Analysis Alerts” will often do much of the sector work
for you. The post below is a good example:
10:02:35
Applet
Analysis Alert
BMC Software (BMC)
retouches the 50 and 200-day moving averages. The software sector has been
one of the weaker sectors this morning. If BMC can break through the 50
and 200 MA’s it could provide for some further downside as it breaks from a
congestion zone. Other stocks to watch in the sector include (ADSK),
(MSFT),
(CTXS)
and (PSFT).
Let’s take a closer look at this trade. Our first mission, when looking for
potential shorts, should be to find the weakest sectors. This morning, software
was one of the weakest sectors. Within that sector, BMC Software
(
BMC |
Quote |
Chart |
News |
PowerRating) was trading
near the lows of the day. In addition, BMC was making a third attempt to break
through the 200- and 50-day moving averages. These moving averages often will
provide some strong support. However, once broken, they can provide strong
resistance.
This morning’s sector weakness helped push BMC below the 200- and 50-day MA
support. You take the trade (short) with the moving averages now becoming
resistance to the upside as well as having price chart resistance in the $17
area. Will it work? Nobody knows for sure. It is one of many trades you will
make over your trading career. However, using the top-down approach will
put the strength or weakness of the sector on your side and will give a
favorable bias to your trades over time.
Always remember, don’t settle for anything less than the best odds when
trading and that means following a sector before stock approach to the markets.
Until next time,