By: Chris Rowe — May 4, 2021
Technical Tuesday—These 5 Tickers are Strong & Stable
Sector trends are more stable, reliable, and timely than are trends in individual stocks.
Now, this stability doesn’t mean they can only return 5% -- 10% a year.
No, a strong sector can return 100%, 200%, or more, if you know how to spot them.
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In fact, right now five market sectors look ready to soar.
In a moment, I’ll show you how you can potentially make a lot of money on the strength of these five giants.
But first, let’s talk about why sector trends are so stable, reliable, and timely.
The vast majority of the volume traded in the stock market comes from large institutional investors. We’re talking about giant hedge funds such as Citadel… as well as pension funds, and giant individual investors like Carl Ichan, Edward Lampert, George Soros, etc.
It’s easy to see why this is the case…
When it comes to the markets, whoever has the most and best information, has the most leverage. And without a doubt the giant investors have the best information.
They have the best information because they have the most money. They have the most money because... they have the best information.
They know what laws will probably change in the future. They are probably affecting what laws will be changed! They are the “special interest” because they are the ones with the money.
Sounds unfair, doesn’t it? But it isn’t. In fact, knowing this actually gives you a big edge over the big funds.
Index fund traders must invest in giant ideas. They don’t play for earnings or FDA approvals. At least, not much.
They care about big shifts in the global economy. They invest in where wars are being waged, for example. They invest in big moves by giant industrial nations, like the United States. They invest in discoveries in energy.
Other factors they watch closely are:
- Seismic shifts in the global economy
- Federal stimulus
But the large funds face a dilemma.
Due to their size (how much money they have to invest) they need a “value bucket” large enough to not significantly alter the price of a single stock.
They can double, triple, or quadruple the price just by entering the position.
For that reason they have to build their positions slowly. If they move too fast, not only will they tip their hand, and let everyone know what they’re buying into…
But, worse (from their perspective) all of their buying will drive up the price of the stock they’re trying to buy. That cuts into their profits.
Even worse, when they get out of the position, they can knock the stock price down to unfavorable levels where (again) their profits suffer.
That’s why these giant investors must spread their money around into large groups of stocks instead of individual stocks.
Typically, they’ll either buy all of the stocks in one index with the push of a button, or they’ll focus their purchases on a large number of stocks within a similar group, such as sectors (industry groups).
For example, when interest rates or tax rates are lowered, companies in the financial sector tend to do well. So a large investor might decide to establish a universe of 300 stocks in the sector that will benefit from such an environment.
And that buying tends to continue for several months, or even years, for two reasons:
- Big shifts in the economy don’t just turn on a dime. They continue for a long time.
- Even though giant investors are spreading their money around 300 stocks (in this example), they still have too much money to do so without disrupting the price-range.
Buying the sector too quickly still risks their ability to capture an appealing price for the sector and if they make too much “noise” while buying, it alerts momentum investors on the demand for the sector, causing competing bids to join the party.
Sector trends are most reliable because it takes months—even years—for index fund traders to execute on their decision to get in. The stock or sector is likely to go higher for months or potentially years.
What’s more is that nowadays, even individual investors have access to technology that detects when this buying is occurring and when these giant investors are carefully attempting to exit their position (sell).
Getting out of the sector is also a process but it tends to happen about three times faster than the entry. And since their positions are so big, they generally start selling when there’s still positive sentiment and demand for the sector.
And that’s where your advantage comes in. Huge investors make tons of “noise” when they buy and sell.
You can move silently, though. No one will see you coming. You can just hitch a ride with the big boys as they manipulate the markets with precision.
Think about what the risk/reward is, and think about your probability of being successful. With sector trends, the probability of being successful is very high.
Sometimes subsectors go up 200% in a year! Just because grandmas at Schwab like the safety of sector ETFs, doesn’t mean ETFs won’t have a big upside.
Now that we know why sector trends are reliable and stable, let’s get back to the big sectors trending now.
- Steel Iron (Long-term strong / Short-term strong)
- Semiconductors (Long-term strong / Short-term strengthening)
- Oil Service (Long-term strong / Short-term strong again)
- Alternative energy (Long-term strong / Short-term weak but trying to regain strength)
- Finance (Long-term strong / Short-term strong again)
We have two commodity sectors: Oil Service and Steel Iron.
My sector trading platform, Sector Prophets, has maintained a huge relative strength buy signal on the Steel sector since October. It’s been a major winner for us. You can buy the sector through the ETF “SLX.”
The Sector Prophets platform also generated another buy alert on the Oil Service sector last Wednesday (April 28th). You can buy that through the ETF “OIH.”
The Alternative Energy sector has been a massive winner over the long-term and therefore had the biggest price pullback that smashed the sector recently. But the selling seems to be nearly done. This is for aggressive early-traders and long-term investors (who wouldn’t mind a short-term pullback). You can do this through the ETF “SMOG.”
Technology stocks have been making a comeback after a short-term decline. Out of the four Technology sub-sectors, the Semiconductors sector is especially strong. You can pick this sector up using the ETF “SMH.”
The Finance sector is exceptionally strong and I’ve been waiting for it to regain traction. The traction has begun and you can own this sector through the ETF “FXO.”
That’s why sector trends are reliable and stable.
Don’t get sucked into that outdated notion that “reliable” means “tiny returns.”
Reliable, stable, and timely can translate into a whole lot of money.
Again, here at True Market Insiders, our primary focus is on sector investing and relative strength analysis. These are the keys to stressless, high probability, investing.
Yes, you can have that without giving up huge upside potential.
Besides, if you invest in the often unstable trends of individual stocks, you’re less likely to hold onto the position for long enough to realize those giant gains without getting shaken out.
If you want to invest in individual stocks, your primary focus should still be on which sector the stock is in. The way to become ultra-wealthy is to invest alongside the ultra-wealthy. And you can do so without the disadvantages they’re faced with.
Thanks for reading,
Founder, True Market Insiders