This bear market has ripped most portfolios apart. Some portfolios have been shredded. Recently, a money manager was on TV saying he really likes it when stocks are down this hard because there are so many bargains. I have two additional statements for that. He probably wishes he wasn't fully invested when it started falling, and he'll only be happy if the year 2016 ends higher, not lower.
One of the other market axioms is that 70% of the stocks follow the index. In bear markets, that correlation goes higher it seems. The S&P 500 closed down 3.1% from the previous Friday. I did a quick scan to see how many large cap stocks closed higher this week and the number was 197. (This is a larger group than just the S&P 500). As well, I scanned for large cap stocks that closed Friday 5% higher than last Friday. There were only 47. Lots of those stocks were just bounces off lows, but that small group outperformed the index by 8%. So how could we find the ones that at the very least did not go down before the week started? Let's see if we can find the majority of the group of 197.
The StockCharts Technical Ranking System (SCTR) ranks the price action of a stock against its peer group. So this indicator compares a large-cap stock against the large-cap group, a mid-cap stock against a mid-cap group etc. A stock with a ranking (SCTR) of 95% has price action better than 95% of its peers. This ranking uses time calculations that are predominantly 10-month,6-month, 3-month, 1 month and a few days to rank the stocks. The calculations rank the stock in real time, all day. The interesting thing is that different industry groups rise in the rankings somewhat together. Click here to learn all about the SCTR including how it is calculated.
Here is a current snapshot of the leading SCTR rankings for large cap stocks.
The list is dominated by Utility stocks. Let's zoom in by sorting on the Utility stocks. Within Conventional Utilities as an example, all but two have an SCTR ranking above 75. The SCTR column is to the right of Conventional Electricity, the next column has the change in the SCTR ranking today, then the closing price, then volume. There are even more Utility stocks, but this is a screenshot. You can get to the SCTR rankings by following this link. SCTR Rankings.
What is more interesting, is comparing the change in the SCTR from last week to this week. So the list above showed the change in the SCTR ranking from Thursday to Friday. The list below shows the change in the SCTR ranking for the last week. What I notice is that almost all of them had very little change. They were winners last week, and they still are.
The SCTR can really help you stay on top of the best of the best. When this leadership starts to change into other industry groups or sectors, you can change your portfolio to only hold winners, week in and week out. The odd one drops like a stone, but that can happen at any time to any stock.
For more information on SCTR's, I try to use them extensively in my webinars. I'll be doing three webinars this week. The first one is on Monday as a guest of Tom Bowley on Trading Places. The second one is focused on the Canadian Stock Market on Tuesday as the Canadian Technician and the last one will be on Thursday for the Commodity Countdown.
If you have not tried to use the SCTR ranking, click on the links above to register. It is an incredibly valuable method of staying with winners. In each webinar, you can learn more about how to use the SCTR system. When the majority of your portfolio is holding winners week in and week out, the odds are much better that you won't be relying on luck to outperform the market. Click here to go to the SCTR Rankings. I like to use the drop down box at the top to look at different SCTR groups. I then click on the column headers in the following order. Click SCTR to make sure the 99% one is at the top, then click industry, then click sector. Scroll down and see which industry groups are really starting to shine.
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Good trading,
Greg Schnell, CMT
