Sector Trend is a change of momentum study that uses a proprietary formula which incorporates data from several studies such as standard deviation, moving averages and average true range. Data from the S&P 500 index is used to represent the various sectors and industries. All momentum data is displayed on bar charts will have a range bound reading from 100 to -100. Green bar charts show a positive momentum trend, yellow indicates no significant trend, red indicates a negative momentum trend. In addition to the bar colors, it is helpful to look at bar height and trends in the bar height for insight into momentum trends.
Sector Trend in Practice
Momentum trends can play a factor in the profitability of any investment. When overall market sentiment is negative those companies that perform well do not always seem to get the lift they might normally get from timeframes when sentiment is positive. The reverse can be said for times when you are trying to enter into a short investment during periods of positive market momentum. Sector trend analysis can start from a company specific level or from a more macro level so that you have a better picture of how momentum trends might impact your trades.
For example, in the graph above we sorted the various sectors by those that are rotating up in terms of strength. The graphs then display in order of which industries are beginning to trend higher for the period of time studied. You can select up to 99 days of history for review. By clicking on any of the sector boxes the software will display those industries within that sector that are leading the charge in terms of performance. This allows investors interested in momentum strategies to more readily identify leaders in the market rallies and sell offs so they can position themselves appropriately.
Read Next: Ultimate Oscillator
The analytical tools 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 endorsement of any specific investment, tool or strategy. The choice to engage in a specific investment, tool or strategy should be based solely on your research and evaluation of risks involved, your financial circumstances and investment objectives. Securities are subject to market fluctuation and may lose value. Market volatility, volume, and system availability may impact account access and trade execution.