First Compare the Index , with its Groups , watch wich groups are acting stronger or weaker then the overal market then go into that group and look for the weakest/strongest stock , to take a trade on
if a group acts stronger then the overall market, pick a strong stock within that group if a group acts weaker then the overall market , pick a weak stock wihin that group
One of the best indications of the future course of a group or a stock its comparative strength when the rest of the market is weak, or its comparative weakness in a strong market.
James R. Keene used to say: "Watch the stock that shows strong resistance to pressure when the market is weak, and buy those stocks for all you are worth. ------------------------------------------------------------------------------------------------------------------------------------------------------- Looking at the SP500 and its recent selloff , we can see that the XLP responds the most ie XLP acts weaker then the overal market.
compared to the XLU which doesent quite responds that well to the sellof ie. XLU acts stronger then the overall market.
XLV doesnt quite react well on the rallies in the overall market and is way off its highs , ie. XLV is acting weaker aswell
lets compare XLU vs. SP500 side by side , to show you what i mean:
XLU was stronger then SP500 over the course , and played a big role on the advance of the overall market
A.) the low at A has been taken out on the SP while XLU made a higher low (strong) B.) as XLU topped out the SP stayed on its high and formed a range C.) while SP and XLU found support , the SP dropped through that support while XLU held support (strong)
now as XLU was taking a leading role in the strenght of the overall markets m it may verywell be the case that we are just in a resting spell , and XLU may return to its strenght and push higher , pulling the SP along the way
so we dig into XLU and find stocks which act strong and are about to move , soonest fastest and furthest
first Stock XEL
XLU , stays within its upchannel near the demandline while XEL picked up momentum and bounced off the "mean"
more in comments....
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Invezted
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XLU is currently within a downchannel near the "Mean" . while XEL not only took out the recent swing high (A) but also sits at the 50% retracement , where a buying opportunity may arise , furthermore on a decline of XLU the next best buying op. would be at a major conflunce area (demadnline+"mean"+support)
Invezted
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ES would be another nice opportunity in playing a strong stock , as it alos took out its recent high (A) and aswell is residing at its 50% retr. level ,
Invezted
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ES acting pretty strong taking out the high on a nice rally (A) compared to XLU and is pretty much unresponsive towards the current decline in XLU , forming a lil range , whereas buying support or a pullback after a breakout would reveal a nice long play
Invezted
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now lets take a look at a rather weak group XLP and compare it with PG just look at the rally from (A) while XLP prettymuch gained some ground PG prettymuch was moving sideways
breaking the support (B) while XLP stayed well above ...
Invezted
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a closer look at PG vs. XLP reveals some more weakness , as while XLP at least traded to its recent swing high , PG made a lower high even (A) below the 50% retr.
XLU is currently within a downchannel near the "Mean" . while XEL not only took out the recent swing high (A) but also sits at the 50% retracement , where a buying opportunity may arise , furthermore on a decline of XLU the next best buying op. would be at a major conflunce area (demadnline+"mean"+support)