Sector Trading Indicators

Below we highlight a daily indicator that we use to track the S&P 500 and its ten sectors.  By tracking the sectors using both momentum indicators and overbought / oversold indicators we are able to identify extreme levels where the probability of a reversal is increasingly likely.

The "Overbought / Oversold" indicator is based on a combination of top down and bottoms up sector and market data, and is a short-term gauge helpful in identifying entry and exit points.  The "Momentum" indicator is based on a wider series of moving averages and will help illustrate when a trend has become exhausted.  Financials currently exhibit simultaneous OB/OS and Momentum buy signals which indicate that the downtrend in that sector has reached an extreme.  Industrials and utilities are very oversold, but we might use more caution with these issues since momentum indicates that the trend may not yet be exhausted.

Comments

[roadrunner]

Cool chart. How do you calculate OB/OS and Momentum? I can see some stochastic...but not sure exactly.

Thanks!

[Swing Trading Barry]

Interesting indicator. I clicked on the picture to see it more clearly. Is this something available for us, or is it proprietary to you?

Also - the "Ticker Sense Blogger Sentiment Poll" is equally interesting. Would you see that as a contrary indicator?

[jack]

I visited the site and it was interesting - I have a friend in the insurance business who is looking for that type of contents. I forwarded the link to him. jack