TRADERDOC'S SECTOR SORT   (as TraderDoc says, it's "sorta" cool)

 For more information about livetrading with Candy , or about TC2000, email Schaap5050@yahoo.com

TraderDoc Sector Sort     

A “top down” approach to trading looks for agreement in three important areas of market action—the overall market, sectors within the market, and individual stocks within a sector. When the market is trending up, we want to look for the strongest sectors (also trending up). Next, we look for the strongest stocks within the strongest sectors. This approach is based on the principle that trends are more likely to continue than reverse. Strength leads to more strength.

My method for looking at the market uses TC2005 to quickly sort sectors and quantify their strength and visualize sector rotation. I will describe the steps below. The sector sort can be done on Media General Industry Averages (MGIA), Exchange Traded “sector” Funds, as well as stocks within an industry group. The best feature is the quickness with which TC2005 allows us to sort (A to Z or Z to A) and move between sectors and stocks.

TC2005 has an excellent feature of which many traders may not be aware--PCFs can be used in the sort “columns” under the 1-10 tabs. The overall concept of the TraderDoc sector sort is to put price percent change for various time periods in the tab columns and color code for positive and negative values. Sector analysis can be done on the major industry groups for an overall look at the market or on subindustry goups to be more specific.

Don Worden’s note of 11/1/05 discusses how to set up a watchlist of sectors (please read). I won’t repeat that step here, but TCMail me if you have questions on how to set up the watchlist(s). Below are the steps to the sector sort. If you have any trouble, TCMail me and I’d be happy to help.

Step 1—Create 10 PCFs for price percent change. Why? Because TC2005 “ranks” price percent change from 1-99, and we want to have actual percentage numbers. In order for your columns to be a narrow width and still be able to read the heading, I simply call the PCFs %5, %10, %21, etc. These represent price percent change for 5 days, 10 day, and 21 days respectively. The formula for a 5% price change is (C – C5) / C5 * 100. You make 10 PCFs for the following time periods (in days)—5, 10, 21, 31, 42, 52, 63, 84, 126, and 250. These numbers span from one week to one year.

Step 2—Set up the first three columns. Going left to right, the first column will be for “symbol,” the second for “company,” and the third column for %5. Right click on the third column (or create one) and choose “edit column.” For contents, choose “%5.” The other things to choose are “align left,” “bold,” “background color green.” Place a check on the box that asks for color of negative values, and choose “red.” Finally, choose “round off numbers.”

Step 3—Copy format to the remaining 9 columns. Important: the next 9 columns go fast if you right click on the 5% column and choose “insert column to right” (this saves your settings for colors, values, etc.). The only thing you need to change is the PCF, and the next one is %10. After the %10 is completed, right click on that column and choose “insert colum to right” and repeat the process for the remaining PCFs in ascending order.

Step 4—Sort Sectors. Now you are ready to sort your watchlist of MGIA sectors and look for strength, weakness, and rotation. Notice the following things you can do.

1. In the upper sort window, click on “personal” and choose your watchlist of MGIAs (see Don Worden’s note). I use two watchlists, one for the MGIA categories (end in 0) and one for subsectors (end in an odd number). In the subsector list, I add conglomerates because it has no subsectors.

2. In the right of your bottom sort window, choose ABC or ZYX. ABC sorts the strongest to weakest, and ZYX sorts the weakest to strongest. Every time you change between the two, hit “home” on you keyboard to take you back to the top of the list.

3. Now, the beauty of TC2005--you can click on any of the PCF headings to quickly sort for any of the timeframes. If the market has made a move up in the last month, simply click on %21 and see what sectors moved the market. As you look at the ranking in the %21 column, you can still see the performance during all the other time periods simultaneous (although they are not ranked in the other columns).

4. If you find a sector you like, go to your chart and click on the subgroup drop down menu, and choose “change to subindustry components.” This then drops all the stocks in the hot sector into your sorting tab! Now you can see all the strongest stocks that moved in the sector in the last 21 days, or whatever timeframe you want to look at. And you can now sort the stocks in the same way you sorted the sectors.

5. Whether looking at sectors or stocks, the numbers in the colums represent the price percent change in actual percentages. The green boxes show stocks that went up in price and the red boxes show the stocks that went down down in price.

6. Finally, by scanning the boxes with your eyes from left to right, you get a visual image of the stocks which are rotating into or out of favor. Generally, if all the columns are green, except the %21 is red, then you might be seeing the early stages of a reversal or a pullback.  If all are red, but the %21 turns green, you may be catching an uptrend early.  It depends on the market conditions. For new uptrends, sort with ZYX, looking for new “green” action. Quickly compare short and long term performance. Do the opposite for downtrends, sorting with ABC and looking for new “red” action.

7. Don’t forget that you simply click on any MGIA or stock symbol and the chart is there to look at. Look at your 50 and 200 MAs (10 and 40) on weekly chart) for intermediate and long term trends. For sectors, I use a weekly chart for the bigger picture. I also like to have relative strength vs the SP-500 on my chart when looking at sector rotation in the market. Sectors that are outperforming the S&P get special attention.

To summarize, using a top down approach to trading will improve your perspective on the market and give you a framework for making good stock selection. TC2005 is a powerful tool to simplify and expedite the decision making process. Start with the overall market, then sort sectors to find hot stocks.

Good luck and good sorting! --TraderDoc  Pictures of how it looks.