How Sector Trends Work

The Sector Trends tool is designed to help you identify potential trends and evaluate momentum in various stocks, industries and sectors. In addition to identifying the trend, Sector Trends provides a quick way to measure the trend's strength. To understand how to find new opportunities using this tool, let's first discuss sector and industry groups, and the differences between them.

Market Indexes

Several methods can be used to compute an index that represents the U.S stock market. The Dow Jones Index and S&P 500 Index are the indexes most commonly referenced. The Dow is calculated using 30 of the largest companies in the market, while the S&P 500 is calculated using 500 large companies.

Both indexes provide a representation of a basket of stocks. While the Dow is perhaps the most commonly quoted index, it's narrow in that it only accounts for 30 stocks. In contrast, the S&P 500 index collectively accounts for almost 70% of the market's value, and therefore is regarded as a better overall representation of the market.

Even with its wider scope, the S&P 500 still does not account for all the approximately 8,000 individual stocks listed on the NYSE, NYSE MKT and NASDAQ. To provide a better business categorization, these 8,000 stocks are divided into sector and industry groups.

Sectors

The U.S. stock market (approximately 8,000 individual stocks listed on the NYSE, NYSE MKT and NASDAQ) is categorized into 10 different sectors. Each sector represents a large segment of the economy. The 10 sectors are as follows:

  • Consumer Discretionary
  • Consumer Staples
  • Energy
  • Financials
  • Healthcare
  • Industrials
  • Information Technology
  • Materials
  • Telecommunication Services
  • Utilities

Industry Groups

While sectors represent large segments of the market, industry groups are made up of sub-categories that combine companies based on more specific criteria. For example, the energy sector houses the following industries:

  • Coal and Consumable Fuels
  • Integrated Oil and Gas
  • Oil and Gas Drilling
  • Oil and Gas equipment services
  • Oil and Gas Exploration Production
  • Oil and Gas Refining marketing
  • Oil and Gas storage and transportation

Individual Stocks

To find potential stock opportunities, you can use Sector Trends to identify positive momentum in a sector first and then an industry within that sector. Once you've found an industry with positive momentum, you can evaluate the momentum behind all the different stocks within the industry to locate new opportunities that match your trading strategy.

Sector Trends also gives you the ability to analyze the momentum behind your current holdings and identify opportunities to buy more or sell the shares you already own based on your strategy.

Read Next: Sector Trends Calculations

The analytical tools and examples described in this article are for information purposes only and their use does not guarantee a profit. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should fully research any security or tool before making an investment decision. Securities are subject to market fluctuation and may lose value.

Illustrations are hypothetical and do not reflect actual investment results or guarantee future results. Past performance of a security or strategy does not guarantee success in the future. Results could vary significantly and losses could result.

Market volatility, volume, and system availability may impact account access and trade execution.