Majority of Components

Today, June 19, we’re discussing the art of believing in investing by using the majority of components. Just as a skilled salesperson engages with you by asking the right questions and offering compliments, the market also conveys its narrative.

Investing spans short-term to long-term horizons. For short-term trades, you might rely heavily on indicators: a divergence or an upward cross through a trigger can signal a trade. However, for long-term investments, a bit more due diligence is necessary.

Study of Sector ETFs

This doesn’t mean you need to dive deep into quarterly reports, although you can if you have the time.

Let me illustrate with a recent example. Over weekends or at the start of a new month, I review sectors and industries to strategize for the upcoming weeks or months. I use a study of various ETFs for this purpose shown in the image above.
Of course, most of the curves concentrate in the middle.

Focus on May

In the image above, all sector ETFs for May are listed. We will identify the top-performing ETFs from this selection.

Focusing on May, I identified three strongly performing sectors by analyzing the top 15 performing stocks. Let’s take a closer look at the renewable energy ETFs. For long-term investors, it’s prudent to invest when 70-80% of a sector’s components are outperforming the sector benchmark.

Majority of the renewable energy

For long-term investors, it’s prudent to invest when 70-80% of a sector’s components are outperforming the sector benchmark. Using the TopPiX study in TransStock, we see that while First Solar is making new highs over the past year, others are underperforming.

However, in May, 8 out of 11 stocks were rising, the majority, indicating a sector worth monitoring.

Majority of the XLK

Let’s also examine the ratio between SPDR ETFs and the SPY over the past year. For this month, only the tech ETF XLK has outperformed the SPY. This doesn’t imply other sectors aren’t performing well, but highlights tech’s significant market influence.

If you’re invested in tech, you’re likely seeing good returns. This isn’t just due to giants like NVDA or MSFT. Looking at the performance chart for this month June, you see that 44 of 65 titles are having positive returns.

Conclusion

For trend investors, it’s crucial to believe in a sector or market when the majority of its components are leading.

Click here to watch the video