5 ways to find RELATIVE STRENGTH & SECTOR ROTATION

Achieve outperformance in every kind of market

Its the liquidity that drives the Markets.

What is Sector Rotation?

Liquidity moves the markets. This is the truth. At any point in time, liquidity doesn’t favor all stocks/groups equally.
For example, for some time now, groups like Capital Goods and Autos have shown sustained up move while chemicals have been in a sustained down move. Why?

Money did flow to these outperforming groups while it flew out of the underperforming group.

This cycle is basically sector rotation.

Our job is to identify where the liquidity flows to and latch on to that group(s).

There are N different ways to find this.

A few weeks ago I showed you the simplest way to visualize this.

THE SIMPLEST WAY TO VISUALIZE RELATIVE STRENGTH AND SECTOR ROTATION

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In this article, I will show you more ways of doing the same.

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Different ways to find Relative strength and Sector Rotation:

1. 52-week highs vs. 52-week lows:

   Logically, the groups where money is flowing in will rise and a higher % of stocks from those groups will be making 52-week highs (or 3-month highs or 1-month highs, depending on the timeframe of your interest).

   Similarly, groups from where the big money is making an exit will be making 52-week lows.

   Run a scan at EOD or EOW and you will know.

   https://chartink.com/screener/1-3-52-week-high

   https://chartink.com/screener/copy-sh52wl

2. Top 20 gainers vs. Top 20 losers in Nifty500:

   The nifty 500 is a good enough representation of the liquid markets. As such, simply looking at the top 20 gainers vs. the top 20 losers list every day will tell you about the flow of money in a shorter time period.

3. % stocks in a sector within 95% of 52-week highs:

   Rather than going through the list manually. Running a scan that gives you % stocks that are within 95% (can ask for 75% or 80%) and plotting it down will clearly tell you which group is showing the highest relative strength.

   https://chartink.com/dashboard/190182

4. Breakout stock vs. breakdown stocks:

   Before showing outright strength or weakness that is visible when the stocks start to hit the 52-week high/low list, they will show it by breaking out or breaking down from key pivots. These pivots can be Base high/low pivots or key moving averages.

   For example:

   Stronger stocks after an uptrend followed by a tight area will break out. This breakout can be caught by simply scanning stocks that have crossed:

   a) Supertrend 10/2 or 10/3

   b) CCI 100

   c) Key Moving average like SMA 20/50/200.

   Similarly, weaker stocks will break down from a key pivot much earlier before it start to hit the 52-week list. This can be identified by a scanner which catches stocks that break below:

   a) Supertrend 10/2 or 10/3

   b) CCI -100

   c) Key MAs like SMA 20/50/200

5. 15-day or 30-day or N-day relative strength:

   I have already talked to you about this. Plotting the absolute performance for a particular period of time will clearly show you which group has been leading and lagging.

   Link to the dashboard: https://chartink.com/dashboard/190182

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That's all for today.

before signing off I want to reiterate the fact that trading is a process but it is also personal.

There are more ways to achieve the same goal, to find the same stocks, and to create the same wealth.

But there is probably ONE way that suits you the best.

Sakatas Homma helps you find your best way.

I can do that in 2 ways:

1. The Sakatas Homma TA masterclass for beginners:

   A monster course 8-10 hours. Hourly sessions on weekends. Twice a year.

   Please register for the next batch using the link below.

   https://docs.google.com/forms/d/e/1FAIpQLScfnQA1w9WDTtTAPEHIqzkS9jhRSZFA1BZXuWRZ5JPZ3Qfu8g/viewform

   Watch my 1st session of the spring 2023 batch.

2. Homma Private Access membership:

   HPA is a subscription-based educational service (on WhatsApp). Benefits include:

   1. Daily Market Breadth Update.

   2. Access to my scanners, dashboards, and charting layouts.

   3. Weekend hourly session and Q&A.

   4. Live updates on my portfolio and the trading setup rationale.

   5. Live updates of key setups I am tracking.

Yearly membership of 12000/- INR only.

UPI payment & WhatsApp @ 9481506784.

Yours

Sakatas “RS” Homma.