Sectors

Sector direction is responsible for approximately 30% of a stock's movement.
Sectors separate similar companies into a business category (i.e. computer related companies are put into the computer sector), and accurate sector analysis may be what determines your success or failure in the Market.  Remember that not only is approximately 50% of a stock's movement attributed to market direction, but it has been proven that being in the right sector and market environment accounts for approximately 80% of your investment success. 

Make sure you buy stocks in undervalued sectors with correct technical patterns to help manage risk.

How can you tell which sectors will perform best in the coming economic environment? The first step is to do your analysis of where we are in the current economic cycle to determine whether the economy is expanding or contracting.  Once again, different sectors will outperform others during different economic periods.  Taking advantage of sector rotation is very important if you want to make your money work its hardest for you.  Once you've done your fundamental analysis, it's time to move on to technical analysis of the sector (which will be covered elsewhere).

Key Sector indicators:

• Earnings track record vs. potential growth-quality of earnings
• Market opportunity-expanding or contracting
• Current valuation levels vs. historical levels
• Economic and political forces (i.e. tobacco stocks)
• Profit margins

Go to Page 7