Monday, May 14, 2018

Live Example: How to Benefit from Industry Acceleration.

From the desk of Sagar Nandi and Superior Profit

Superior Profit traders look at multiple levels of the market pyramid structure. This structure has Country-Market at the top, followed by Sector and Industry and then Individual Stocks. Stocks may be further analyzed based on Fundamentals and Technicals. Here I focus on the Sector/Industry level with a live market example. You can use such insight not only in the USA Market but other countries as well.

The pitfall of not using Industry Rotation Insight.

Many traders don’t have the discipline or don’t have the tools to study the Sectors and Industries. They may buy Stocks in an Industry that is in peril due to macroeconomic factors, government policies, interest rate environment, technological changes, etc. The individual Stock may be healthy among its peers. However, that does not help. It ends up like swimming against the current in the river Ganges as it flows from the mighty Himalayan mountains to the Indian plains. The Stock has to make a considerable effort only to remain still. To break even in the stock becomes difficult, if not impossible.
Contrast that with the case where you are buying a Fundamentally Strong Stock in an Industry with favorable macroeconomic and policy factors. Even a moderately strong Stock will do well in such an environment. Making profit becomes easier.
Studying the strength and weakness of the Industries also helps you rotate money in a timely fashion from one Industry’s Stocks to another. Investment funds use this Industry Rotation Analysis before putting their money in a Stock. And you may also handsomely benefit by using the same. Unambiguous, easy to use and actionable Industry Rotation Insight was not available to retail traders. However, now it is available in CUE Edge (real-time version) and CUE Industry Scorecard (web-based version). I use the insights from these Industry Analysts every time I invest in a Stocks.

Live application of Industry Acceleration/Deceleration.

Here is a live example based on my public Market Roundup webinar. The video recording is available on the YouTube Channel under Weekly Market Roundup category.
In the Market Roundup of Saturday 5th May 2018, I had shared that though Utilities Sector was the only positive performer for all the review periods looking back one week to one month, it was showing signs of weakness. The Utilities Industries were starting to decelerate.

Sector Performance Graph and Commentary from Market Roundup.

Above is the snapshot that I had shared in the Market Roundup. You could find the deceleration from Industry Score Heat-Map in an instant using CUE Edge Real-Time Industry Analyst or using web-based CUE Industry Scorecard. You could observe the Industry Rotation not based on newspaper opinions or anecdotal evidence but based on real and meaningful data analytics. And the visual heat-map made the Industry Rotation obvious, hiding the complexity of the data under the hood.
How does Utilities Sector look today before Market Open on Thursday 10th May? Over a rolling five days period, Utilities Sector is now having the worst possible score of 1 and the visual heat-map color is dark magenta. I am attaching that snapshot as well.

Sector Rotation Scorecard.

Isn’t that fascinating? You could anticipate the Utility Industries’ decline before it happened. Just like looking at a decelerating car in a car race you can predict that the vehicle is about to fall behind. Sector/Industry Acceleration/Deceleration once again proved to be the best predictor of future market moves at the Sector/Industry level.

How you can benefit from Industry Rotation Analysis?

Industry and Sector Rotation takes place regularly. Sometimes it is strong. Other days it is muted. Whatever be the magnitude, you can know of the undercurrents instantly using CUE Systems visual Industry Rotation Scorecard and Heat-Map. And when you use that in your trading decisions, you have aligned forces from a critical layer of the market pyramid structure with your trade. Giving you trades that have a higher probability and lower risk.
How could you act on the signals from such Industry Analysis? For one, you could protect profit in your Utilities Stocks Long Positions using Trailing Stop. Or, you could book profit altogether, moving your money to another Industry that is now accelerating instead of decelerating.
Would you prefer not to do that? What is stopping you from using Industry Analysis in your next trade and all future trades? Afterall, it takes only a minute or two to gather that insight visually from CUE Tools.

Thursday, May 10, 2018

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Wednesday, May 2, 2018

CUE Global on Metastock XVI: Workflow to Identify Reversal Buy Opportunities

From the desk of Sagar Nandi and Superior Profit

Test driving CUE Global on Metastock XVI on the live USA market: A Workflow to Identify Reversal Buy Opportunities.
Metastock just released its latest XVI version, and I wasted no time in testing CUE Global Technical Trading System on the enhanced Metastock platform, on the live USA Market.
Trend following trades are common and are easier to identify. What is more difficult is to determine potential reversal trades. CUE Global does both flawlessly. Here I decided to define a simple workflow that will help you identify potential reversal trades.

Step 1: Using CUE Sonar scans to shortlist a few stocks.

There are thousands of stocks in the USA market, and it is not practical to go through all of them. Fortunately, CUE Sonar programs (implemented using Explorer in Metastock) are there to do the hard work. There are several Sonars that you may run based on what you are searching. I decided to use three distinct Sonars together. Let me explain.

CUE Sonars to identify reversal trade setups.
1.1. Many traders prefer to buy stocks at a discount. They do not like to buy a stock that has already gone up. In this case, I was looking for stocks that fell a lot and are now showing signs of life.
Such stocks are found using the Sonar program “CUE Pendulum Low and Reversing.” What is Pendulum Low? It is a price level that is low enough, i.e., attractive enough to start looking for potential long-term investment as well as short-term swing trade opportunities.
1.2. Showing signs of life may not be reason enough to buy a Stock. You may also want to find a stock that has given a proper trade setup as of today. As I was looking for stocks that declined and are now starting to go up, the stocks may not be in an uptrend yet. How to find possible buy opportunities in a down trending stock? You can do it using one of the CUE reversal trade setups.
CUE Headwind Long Trade Setup is such a reversal trade setup, and it turns out that CUE Systems has a Sonar to search for this setup: “CUE Headwind Long.”
CUE Headwind Long Sonar does not merely seek stocks with specific indicator values. Instead, it identifies stocks with solid trade setups at the right edge of the chart, using unambiguous checklists for the Headwind trade setup.
This CUE Headwind Long Sonar uses the unique and powerful Bullish Headwind signal. What is Bullish Headwind signal? Bullish Headwind is a signal that appears while the stock is still in a downtrend and indicates that a reversal may be imminent.
CUE Headwinds often accurately pinpoint reversals, as it did for several FANG stocks at their swing tops with Bearish Headwind signals. I had shared these FANG stocks’ Headwind reversal in a blog earlier. Here is a link to that blog.
1.3. Bullish Headwind signal works best when the stock is oversold. One way of assessing that is to check if the stock is at or below CUE Lower Boundary Lines. What are these Boundary Lines? These are lines that identify a stock’s usual price extremes. If a stock is outside the Boundary Lines, it is likely to snap back to its mean value. I chose the Sonar “CUE Beyond Lower Boundary” to find only stocks that are oversold.

CUE Sonar Result
Altogether, I decided to run three Sonar programs on the list of S&P500 Stocks. I ran the Sonars in such a way, so that result of one is fed as input to the next Sonar, shortening overall scan time. The Sonars took only a few minutes using real-time data, not data stored on my computer. If I used data saved on my computer, it would be even faster.
After running the Sonars, I could narrow down from more than 500 stocks to only four stocks.

Step 2: Evaluate the stocks on dual timeframes.

Many traders look for stocks that are strong both on weekly and daily timeframes before buying the stock. In CUE Systems you can do that by opening an instrument with the built-in, color-coded, intuitive, easy to read, CUE At A Glance Template. As the name suggests, you can identify a potential trade setup at the right edge in less than a minute, usually in a few seconds. CUE At A Glance Template uses dual timeframes, weekly and daily. However, what is different in CUE Systems from other systems is that it uses two distinct chart templates for weekly and daily. The weekly chart uses Backdrop Template, to show the backdrop against which the stock’s movements are taking place. And daily chart uses Hop On Template, which allows one to hop onto a trade using intuitive yet comprehensive signals.
I opened the four stocks identified in step 1 with CUE Technical Trading System charts. Here I share one of them looking through At A Glance Template.

Step 3. Make a trading decision.

FBHS (Fortune Brands Home & Security Inc) is a stock in Building Products industry.
Using CUE Edge real-time Industry Rotation Analyst or offline CUE Industry Scorecard, you can see that Building Products industry was lagging for a long time and now showing Acceleration of CUE Industry Score.
CUE Vital real-time Stock Fundamental and Peer Analyst or offline CUE Stock Scorecard shows FBHS is medium valued. It has earnings growth in the last quarter. CUE Stock Peer Analysis also indicates that FBHS is not the strongest among its peers. Neither regarding valuation nor growth. You may check out some of the stronger peer stocks for possible technical buy-point. For now, let us stick with FBHS and analyze it with CUE Technical Trading System.

FBHS Weekly Backdrop chart

At the right edge, a Memory Support line coming from far far away (the year of 2014) is supporting price. From the recent Candles’ Lower Tail it seems that Bulls are stepping in at the Memory trend-line support.
Weekly Backdrop chart’s Relative Performance is tilting downward. This downward tilt shows FBHS is under-performing the market in the weekly time frame, which you would expect in a reversal trade setup.

FBHS Daily Hop On chart
Daily Hop On chart shows FBHS has Heavy Activity in recent days, as the Industry is Accelerating. Thus, the Heavy Activity may be a precursor of possible reversal, as if buyers are stepping in. The daily chart has displayed the Bullish Headwind signal, a predictor of potential imminent recovery, at least enough for a quick short-term trade and potential for a longer-term up move.
Based on the CUE 360° Analysis combining Building Products Industry Acceleration, Fundamental medium-valuation & recent quarter earnings growth and chart technicals (weekly Memory support and daily Headwind at the oversold price point), this stock looks like a possible candidate for a low-risk buy opportunity. You could place the Stop just below recent low, determining the exact level using CUE Protection signal (not shown here).
One could take such a Bullish Headwind trade if one is comfortable entering reversal trade setups as against the trend-following trade setups that are more common among traders.