by Dr. Bart DiLiddo
Friday, 08/12/2005
Want to improve your stock picking skills and get better at knowing when to buy or sell a stock? Then start using Industry Group and Business Sector RT Analysis.
There's an old saying that "Birds of a feather flock together." And so it is with stocks. Stocks of companies in the same business have similar characteristics and experience the same market forces as their direct competitors. Therefore, the prices of stocks in common industries or businesses tend to rise and fall together. Of course, some stocks will perform better than others, but logic says one should own stocks in rising Industry Groups and Business Sectors and sell those in falling Industry Groups and Business Sectors. This is extraordinarily easy to do with VectorVest, since we rank every Industry Group and Business Sector by Relative Timing, (RT).
For example, if one opens Stock Viewer, one would see that as of yesterday, Chaparral Resources, (CHAR), was ranked highest by VST-Vector. Its Relative Timing, (RT), rating was 2.00, which means that its stock price was soaring. That's great, but was it a loner or was it part of a hot Industry Group? Notice that data on the "Petroleum (U S Explr\Prod)" Industry Group is shown at the bottom of your screen. It shows that the average RT of all the stocks in this Industry Group was 1.43, which is very good. If one were to scroll over to the right, one would see that the RT Ranking of this Industry Group was 11. This means that 10 Industry Groups had higher average RT's and 179 Industry Groups had lower average RT's. Clearly, CHAR and its entire Industry Group were flying high.
Now let's click on the VST header bar in Stock Viewer and sort all the stocks in ascending order of VST. Proxim Inc CLA, (PROXQ), was at the top of the list and its RT was only 0.03, meaning its Price has been destroyed. Incidentally, the "Q" in the ticker symbol means that this company is bankrupt. Nevertheless, we can see that it is in the "Telecomm (Equipment)" Industry Group. The Industry Group's average RT is 0.93 and its RT Ranking is 156. Not good.
Now it's time to take a little quiz. Hopefully, you have a WatchList of your stocks. Sort them by RT descending. Then write down whether or not its Industry Group RT is above or below 1.00. Grade yourself to see how many you got right. If you don't know whether the Industry Group and Business Sector RT's of each stock are above or below 1.00, you need to do more work with Industry Group and Business Sector RT Analysis.
P.S. I'll write more about Industry Groups and Business Sectors next week.
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