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Timing ETFs And Sector Funds Using TradersWire's Intraday Sector Alerts, Part 2
By Eddie Kwong
TradingMarkets.com
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In Part I, I showed you how our TradersWire sector
updates help you to stay focused on the strongest sectors and their components. There are
always alluring pops in individuals stocks that you can trade, but more
conservative traders who want to ditch the "in-and-out" game can adopt
more of a trend-following approach by trading ETFs and sector funds based on
powerful trends in sectors.
In Part II, we’ll chomp into the "meat" of the lesson.
I will show you how you can use TradersWire to help identify sectors with
strong, sustainable moves. After you know where the strength is, visit our
sister Website, FundMovers.com for further guidance on what specific EFT or
sector can be used exploit this information.
Now on with Part II.
Using TradersWire to Find the Sectors with the Best
Potential for Fast, Immediate, and Sustainable Gains
All the analysis in TradersWire has a distinct starting point. That is — we look for the sectors or groups that money is flooding into. Whether we are
looking for worthwhile opportunities in individual stocks or sectors -- that’s
where we begin our analysis.
There is only one thing you have to do for in order to succeed in trading
ETFs and sector funds:
Find sectors that are locked into a powerful and sustained
move
To determine what these winning sectors are we:
- analyze the patterns within indices or ETFs that track the sectors.
- analyze the individual stocks that form the components of leading sectors.
When we have found favorable characteristics in the price action of sector
indices and their respective stock components, we know we have a potential
winner on our hands.
Analyzing the Patterns Within
Sectors and Stocks Within Those Sectors
Powerful, sustainable trends in sectors. . . how do you find them? One way to
identify these sector freight trains is to analyze indices that track the sector
and the individual component stocks that make up those sectors.
This approach is our bread and butter on TradersWire.
Let’s see how we presented our case for semiconductor stocks on TradersWire
in Dec. 1999.
At 10:50:20 on Dec. 14, 1999, we posted the following:
Sector Watch
Strongest sector: oil services +2.3%, S&P chemicals ($CEX.X)
+1.64% and forest and paper products ($FPP.X) +.95%.
Weakest sector: semiconductors ($SOX.X) –4.88%, Goldman
Sachs Internet index ($GIN.X) –2.72% and securities broker/dealers ($XBD.X)
–2.26%.
The weakest group of stocks that day was the semis and SOX Index was down
4.88%. As you can see in Figure 1, the SOX had been declining for most of
the four weeks prior to Dec. 14, 1999. That day was something of a blood bath
for the semis as they led the tech-heavy Nasdaq lower after a
stronger-than-expected retail sales report ignited interest rate hike concerns.
But something that caught our attention was that Intel had come down to a
potential support level, suggesting that it could bounce and help lead a
recovery for the semi group. Look at the chart that accompanied the following
post. Notice how Intel’s price had dropped to the bottom of the triangle
mentioned.
14:26:05
Intel (INTC), which has been moving sideways since the beginning of
the year, is trading within a triangle. Intel is down 3/4 at 73 5/16.
And five minutes before the close we put up the following post for traders
which suggested a potential support level for the SOX Index.
15:55:02
The SOX (semiconductor index) has declined down to its 50-day moving
average. Traders will be watching to see if it finds support there. The SOX is
down 42.11 at 588.93.
This was followed the very next day on Dec. 15, 2000, with a flurry of posts
about support coming into the SOX Index and its stock components. Most of these
were accompanied by charts showing you the price action being described. To
minimize the load time of this Web page, I’ve condensed the action down to the
three charts below.
11:06:15
The $SOX.X Index has come down to both a trendline and its 50-day
moving average. Some traders will be looking for support to kick in for
semiconductor stocks in this area. The $SOX.X is up .02 at 588.01.
11:15:59
Intel continues trade within a triangle formation. The
chart, which shows the stock bouncing from the bottom of the triangle on
Monday seems to corroborate our 11:06 post about the $SOX.X coming down to a
support area. Intel is up 1 1/16 at 73 1/2.
12:12:43
Follow-up to 11:06 Post on the $SOX.X Index:
Semis ($SOX.X) are up after having bounced from its 50-day moving average
and trendline support reported at 11:06. The $SOX.X is now up 14.79,
helping to ease the losses in the Nasdaq which is now down only 6.36. Leaders
include Motorola (MOT) up 9 3/8, Intel (INTC) up 2 7/16 (see 11:15), Micron
Technology (MU) up 3 7/16, and Novellus Systems (NVLS) up 4. Some traders will
look for semi stocks still in minus territory that may go positive if the semi
group continues to strengthen. Some ideas: Texas Instruments (TXN) down 1 5/8,
Xilinx (XLNX) down 1 9/16, Applied Materials (AMAT) down 9/16, and Advanced
Micro Devices (AMD) down 3/8.
12:37:38
Motorola (MOT) is bouncing up from trendline support. This
is amplifying the effect of the "slurry of good news" reported at
10:47 which made the stock one of Wednesday's top point gainers, up 9 3/4 at
129 1/8.
13:20:18
Follow-up to 11:15 post on Intel (INTC)
Intel is following through after bouncing from the bottom a triangle
(reported by the War Room on Monday). Intel is up 4 13/16 at 77 1/4.
15:52:30
Follow-up to 13:20 Post on Intel
Intel has continued its powerful move up and is now up 6 1/8 at 78 9/16.
This brings it within striking distance of the top of the triangle we
mentioned at 11:15.
By the end of Dec. 15, 1999, the SOX Index had put on a gain of 3% on its
first positive close in six days. Many of the leading semiconductors, such as
Intel and Motorola were bouncing from key support areas. This date turned out to
be an important low from which the SOX launched a runaway rally. On Dec. 21,
1999, we reported the following:
10:52:30
The $SOX.X index (semiconductor stocks) is continuing to follow
through from its week long rally. It closed higher for the past four
days in a row after solidly bouncing from an intersection of its 50-day
moving average and a trendline. The $SOX.X index is up 19.05 at 686.35 and
trading at new highs. Leaders include Motorola (MOT) up 10 9/32 and Texas
Instruments (TXN) up 5 7/8.
The writing was on the wall we saw in the action of individual stocks enabled
us to post the following on Dec. 29, 1999:
11:34:46
Semis – Sleeping Tiger
The semiconductor index ($SOX.X) has traded in a narrow range at all-time
highs for the past four days. Many traders seeing this pattern in the
accompanying chart would look for a possible breakout. Stellar performances
in chip stocks outside the index—such as SDLI's four-day, 21% run-up (up 8
7/8 today)—could influence the $SOX.X as the more established chip-names
rise in sympathy. Other semis to watch with good recent performances and
setting up to challenge recent highs or trading at 52-week highs include
BRCM +8 1/16, MRVC +7 1/16, CREE +6 7/8, and PMCS +3 5/8.
The anticipation of an upside breakout continued to build into the end of the
year. On Dec. 31, 1999 our final SOX stories of the year were as follows:
10:31:20
Semis Steadying The Market
While most of the tech sector is under water, the market may get a boost from
semiconductors ($SOX.X) as many stocks on the index are trading on the highs
of the session: Novellus Systems (NVLS) +6 1/8 to 121 7/8, Teradyne (TER) +3
7/16 to 62 3/16, KLA-Tencor (KLAC) +3 1/16 to 111 7/8 and Applied Materials (AMAT)
+3 1/2 to 127 7/8.
11:06:42
Follow-up to 10:31 Post on Semiconductor Stocks
The SOX.X index is trading at the top of an expanding triangle. Chart-oriented traders will be watching for signs of a breakout during the
next few trading sessions.
Then on Jan. 10, 2000:
11:39:12
The semiconductor index ($SOX.X) is rising back up to the top of an
expanding triangle whose progress we've been following since mid-Dec.
From a chart-watcher's point of view, a breakout through the top of the
triangle would be highly constructive.
14:47:28
And finally, the breakout!
Follow-up to 11:39 Post on the Semiconductor Index ($SOX.X).
The $SOX.X index has broken out the triangle we reported to you earlier.
The $SOX.X index is up 7.20% and is trading at an all-time high.
The following chart shows the sequence of events in the chart of the SOX
Index as they unfolded in the conjunction with some of the above posts.
 .
Over the weeks to follow, we continued to update users of TradersWire about
the tremendous upside momentum that was swelling in the semiconductor group. It
was clear that a runaway freight train had left the station.
The characteristics of this sector made it a prime candidate for trading. At
the time of this writing, there is no ETF for the semiconductor sector
available. But there is one good sector fund you could have bought in December 1999.
That’s the Rydex Electronics Fund (RYSIX) whose holdings include all the
heavyweight semiconductor stocks such as Intel, Motorola, Texas Instruments,
Applied Materials, Micron Technology, Analog Devices, Broadcom, PMC-Sierra, and
Advanced Micro Devices. If you had bought this fund on Dec. 15, 1999, you
would have been up nearly 100% by the time the SOX reached its highs in
early March. Not bad for a sector fund.
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