Up-Coming events:

April 2008 Seminar at Sea cruise to Panama Canal

At TradingOurWay, we are currently planning a Seminar at Sea cruise departing out of FT. Lauderdale on April 12th, 2008. It’s an 8 day cruise to the Panama Canal with 4 sea days of classroom activities. We would love to have everyone join us! Complete details can be found on the Tradingourway website.
 
Rick Saddler, Hit and Run Candlesticks, is holding a 1 day seminar in Tampa, FL Sept 29th, 2007.
 
Over the years, I have watched Rick grow from a novice to a very skilled trader. Rick is a great example of what each of us can do if we are dedicated and focused on our objectives. Checkout his site for complete information. or use the link -  http://www.hitandruncandlesticks.com/services.html 
 
Rick's method of swing trading is simple and mechanical, a way to make a living trading stocks. He strives to find stocks that are poised for a move in a profitable direction and to cycle profits from the market to my pocket as the stock moves in a time frame of 1-5 days or more.

Previous Issue:
 
I received some very valuable feedback from last week's newsletter regarding the size of the pictures. So I will keep them smaller in future articles. Keep the feedback coming, it is the only way to make this better for everyone. Thanks.
 
I know many of you have not had the opportunity to read the complete PDF on Support & Resistance. You can still view the complete Support and Resistance  document for a little while longer. Or use the link http://tradingourway.com/docs/Support_resistance_basic_charting.pdf

The survey is also still open, you can view the latest  Survey Results.
or use the link  http://tradingourway.com/surveyresults.html  

The survey will be kept open for a few more weeks in order to give newcomers an opportuntiy to express their opinions. If you haven't taken the survey, click on the link http://app.icontact.com/icp/sub/survey/start?sid=904&cid=152192

A special, Thank you, to all that have participated in the Survey.
 

This Issue:

SECTOR ROTATION:

As a short-term trader I  tend to follow the major indices and the individual stocks more than how money is moving in or out of a sector. However, when money is flowing into a sector it makes sense that there are many bullish stocks in which to go long.  Conversely, when money is flowing out of a sector there are many stocks in which to go short. I refer you back to the Newsletter 08-05-07 for a list of Ultra-Short ETF's you can buy during market down periods if you don't like shorting stocks. To begin our research, we are going to start, where we always start. That is, by doing search on Google. The Google search  resulted in 143,000 hits for "sector rotation” as of 9-05-07.
 
We have all heard the talking heads on TV mention how one should pay attention to the sector rotation. While we have all heard the term "sector rotation", few know what that really means. Usually any time we try to follow what the big boys are doing we are always too late. I suspect that trying to follow sector rotation could end up being just like any other method where we try to be a follower. To be successful, what we need is to be in front of the rotation not at the end. So the question is, how do we determine when "Big Money" starts rotating out of one sector and into another. There are some very good sites that can help us in our efforts to figure out how to be in front of the sector rotation.  I’m going to discuss just a few of them and  give you a short introductory into what is at that particular link. Feel free to explore these links in more detail.

Investopedia:
    
 As always a great place to start is on the Investopedia website. I suggest you bookmark this site.  We’re going to begin by looking at an article from that site. It appears that the most quoted person on sector rotation is Sam Stovall, chief investment strategist at Standard & Poor’s. From all of the hits that I looked through, Sam Stovall’s name came up in each one of them.  He has written several books on the subject, and in fact, he was the person responsible for the term “sector rotation”.  So you will definitely want to go read the complete article.

 A few of the important points made in the article:

Sam Stovall suggests that by dividing the NBER cycles into sub-stages, historically successful periods for stocks in certain business sectors become apparent.

Markets move up and down just like the economy. For the purpose of this discussion, Stovall divides that cycle into four stages:

    * Market bottom  - This is represented by diving prices, culminating in a long-term low.
    * Bull market  - This begins as the market rallies from the market bottom.
    * Market top  -  Just as it sounds, this stage hits the top as the bull market starts to flatten out.
    * Bear market  - Here we go down again. This is the precursor to the next market bottom.

The article then divides the ecomonic cycle into 4 stages

    * Full recession
    * Early recovery
    * Late recovery
    * Early recession

The articles summary states:

With this general outline in mind, traders can try to anticipate which companies will be successful in the coming stages of an economic cycle. Equally important can be the signs the market is exhibiting on future economic conditions. Watching for these telltale signs can give great insight into which stage traders believe the economy is in.

Please read the complete atricle - http://www.investopedia.com/articles/trading/05/020305.asp
 

 Stockcharts:

The next website we’re going to visit is stockcharts.com. Again, it’s another site that you should bookmark.

What you will see on this site is a "perfchart" of the sector spiders, and how they have performed over the last few months.  This is an interactive chart, meaning that if you place your cursor anywhere in the chart,  It will respond to your cursor movement. For example, if you click on the major sector at the top of the chart.  It allows you to compare all the other sectors performance to that sector. This gives you a very interesting look and you’ll need to draw your own conclusion.

What this chart will show you is how each sector has been performing over a period of time. Currently, only 4 sectors are showing a positive gain lately.  Those are consumer staples, industrial, energy, and technology.  Technology is leading the way, which should not be surprise. All you need to do is look at the performance of the NASDAQ over the last month, and you’ll see that it’s been a pretty bullish run.
 
  [NOTE]: I hesitate to send you to this link, because it requires the latest level of Java update 6.2. In order to properly view the chart you will need the latest version.  So be prepared to update, if you want to take full advantage of what stockcharts is offering for free.   

http://stockcharts.com/charts/performance/SPSectors.html

The next link, which is also a Stockchart link and as the name "candleglance" implies it shows you a Candlestick chart of each major ETF and how they have performed over the last 30 days.   

http://stockcharts.com/charts/candleglance.php?XLF,XLK,XLI,XLB,XLE,XLP,XLV,XLU,XLY
 

 Major Sector Spiders:
 
The final link we are going to explore is a extremely interesting website. There are lots of little hidden treasures on this website start by clicking on the "Map of the market" or the "Sector tracker".  You will definitely want to explore this site. I’m going to show you just a few of the things that open up to interesting information, but you will have to go there to really appreciate it.

Tina Logan did an excellent article in her  “Tina - May 5 2007 - Weekly Newsletter.pdf” referencing this site. In the article she tells you how to set up a watchlist for the nine major ETF’s and explains how you can apply charting techniques to the ETF just like any other stock. You can purchase the ETF's just like any stock or  buy/sell options on them. 

Tina Logan, will be one of  our instructors  on our Seminar at Sea in April 2008.
   
Let’s start with the link http://www.sectorspdr.com/performance/ and the  picture below:
 
   
  
Take a look at the sector tracker first. This will provide you up to date data as of the last closing prices. You have an option to view several times periods. Below is a view of a single day of closing pirces as of 9/05/07. These are only updated at the end of day.
 

 
Moving the mouse over the ETF names and clicking on one will produce a listing of all the stocks that make up the ETF. If you then click on the stock, it will provide you with complete information on the stock's performance.
 

 
Take your time and explore the rest of the website including the SPDR heat "Map of the market" below.
 

 

 I believe there is good reason to implement a strategy that follows the movement of money in and out of the 9 major Sector ETF's. This can easily be done by watching the price and volume of the ETF's. You can determine which sectors are getting the most action either bullish or bearish.
 
Take XLE as an example, on Wednesday September 5th a fairly bearish day, as shown in the figure above, not one sector ETF was bullish. XLE's volume was only 68% of the normal 63 day Moving Average. Indicating this was not a strong bearish move. On Thursday, the 6th, XLE was the strongest of the 9 major sector ETF's gaining 1.5%. Otherwise, the market did almost nothing. However, one or two days does not a market make.

 That is, why you should create a watchlist much like I have below and observe the movement over several time periods. This is where a software package such as Worden Brothers' telechart can be useful. They  have recently introduced a new product call Blocks 2.0 which I will be covering at my next Trader's meeting in Tampa, Fl Sept 15th.

 Note: Real-Time datafeed requires the Platnium service.

We should remember  - "What leads on the way up,  will probably lead on the way down".
 

 Please feel free to send an email to kermitp@tradingourway.com  with your suggestions.
 
Thank You and good trading,
 
           Kermit Prather