Well, it was a nice six-day run up but we didn’t quite make it to an UnCola Day (7 Up). The Dow Industrials slipped back 12 points to close at 16,501.65. The S&P 500 Index pulled back .22% but the tech-heavy Nasdaq Composite fared poorly, down .83%. Precious metals were little changed and oil prices were slightly lower.
GDXJ, the junior gold miners ETF, rose 2.63%. FXP, the leveraged short China 25 Index ETF, gained 2.46%. SQQQ, the leveraged inverse Nasdaq-100 Index ETF, was up 2.67%. Please click on the symbols for details.
It’s been a heckuva ride the past few weeks, hasn’t it? The S&P pulled back about 4.3% from its high at the beginning of the month but the Nasdaq-100 slipped 8.8% from its high in March and only recovered about 50% of that before weakening today. And while there’s no way of knowing whether or not the weakness will continue, that doesn’t mean we can’t look for buying opportunities in the meantime. As long as the broad indexes are above both their 50-day and 200-day SMAs, I’ll keep trading the long side.
There are many ways to search for ETF’s that should outperform but one of my favorite’s is to hunt for wolf packs. “Wolf pack” refers to the idea that stocks move in groups, like a pack of wolves. Find a few outperforming stocks and then identify the industry group they are in; it’s likely that other stocks in the group will rise in sympathy. Now find the ETF or ETFs that best represent the stocks in the wolf pack. I find High Growth Stock Investor software ideal for finding outperforming wolf packs.
The search only takes a few minutes. I begin by updating HGSI’s database each morning. It uses end of day data only so I don’t use HGSI for real-time tracking of ETF’s. Next, I use a filter coded into HGSI that looks for Wolf Packs that have been trading higher over the last one and five days:
The filter criteria are last close >= $5; average daily volume >= 100,000 shares; and the One day and Five day % price change for the Industry Group Index > 0%. This gave me 2,342 stocks that met this criteria. Each of these is a data field. You can always make these more or less restrictive, e.g., a price minimum of $10 or an average volume minimum of 50,000 shares.
Next, I winnow this list down to the 100 best performing stocks. I start by ranking the 2,342 stocks by their Raw Combo rank. HGSI’s ranking system computes weighted values for each data field selected by the user and then combines all the weighted values. Combo ranking values can then be displayed in two new data fields called Combo Ranking and Raw Combo Ranking. Combo Ranking uses the same 1-99 ranking system that was popularized by William O’Neil for Investors Business Daily and Daily Graphs. The Raw Combo Ranking data field shows you the value from the actual computation for greater accuracy.
The screen capture below shows the top 25 performing stocks ranked by their Raw Combo. You can make the capture larger by clicking on it:
The two downward pointing arrows show the 1- and 5-day percent price change for the industry group, which is in the next column.
Next, I create a custom group of the top 100 performing stocks. That only takes a minute. And now the last step. I click on the pie chart icon (the Spectrum Analyzer) above the column Force Index 13D EMA and create a pie chart breaking down the top 100 stocks by their respective industry groups:
A full 19% of the top 100 stocks were in the pharmaceutical industry. Yesterday that group rose 1.55% and over the past five trading days has risen 5.33%. Semiconductors were the next most populated group with 12 stocks and both Biotech and Auto Parts & Equipment were tied for third with 8% each.
Finding ETFs that correspond to these groups is easy to do. A Google search brought up among others XPH for pharmaceuticals; SMH for semiconductors; IBB for biotech; there isn’t an ETF for auto parts.
You don’t necessarily need to buy the ETF corresponding to the best performing stocks. If you perform this process daily you can see which groups are gaining and losing strength. For example, yesterday Trucking and Airlines made up 6% and 5% respectively of the top 100 stocks. Are these percentages higher or lower than on last Friday and this Monday? If higher, you are looking at a group or groups rotating into favor; if lower the group or groups are rotating out of favor, or at least, no longer being chased like they had been. On today’s down day, IYT, the Dow Jones Transportation Average Index ETF, was up .11%.
Another approach is to find the corresponding ETF and see if it fires off using any of Larry Connors swing trade strategies. There are many different ways to skin the cat or in this case, the wolf. Repeat this process on a regular basis and it should keep you on the right side of the market.