How to pick stocks with S2O industry analysis

Your probabilities of success are quite low when the market trend is going against you. Secrets for profiting in Bill and Bear Markets by Stan Weinstein

Just as Stan Weinstein put it, the ideal buy candidate is an A+ stock in an A+ group. This is actually a complicated decision to reach and the best way to approach this is work from the large question – how is the overall market – down to the smaller question – which stock looks best to buy. In between those two extremes is the middle part of the equation – which group is acting best technically.

There are several ways to analyze groups, but simplest one is to count number of stocks in bull and bear market and compare those numbers (please, see Industry Analysis post for details). This is “a quick shortcut that produces an excellent “Gallup Poll”.

We implemented this analysis on stock2own.com. Just click on S2O Pro tab and you will see a list of countries with bull or bear image for each for last several weeks. This is the same “quick shortcut”, it is counting number of stocks in bull versus bear condition.

Please, pay attention to the “number of symbols” value presented for each country and group. Stock2own does not have a complete list of all securities all over the world and if number of analyzed stocks is low, this type of analysis cannot be considered accurate. The best coverage is for US market, however stock2own has analyzed a significant number of stocks for some other countries. For instance, as of October 2010, Germany and Great Britain have the best coverage among non US stocks.

Just to be clear, stock considered to be in a bull market if it’s market price is above it’s MA 150 (150 days moving average) AND it’s MA 150 is above it’s MA 200.

Well, knowing how is market as a whole doing does not help much when you want to find a stock to buy. So drill down by simply clicking on the country you are interested in. You will see a list of market sectors with the similar type of analysis.

Country – sectors – industries. This is the hierarchy yahoo finance is using. And this is quite useful, because it allows you to narrow down the search. There are only 10 sectors defined for US market and about 100 industries. So moving from sector analysis to industry analysis, allows investor to identify bull industries very quickly.

In general, when you want to go long or looking for a stock to buy, you want to see bull image for the latest weeks for the sector and industry. If you want to go a bit dipper, there is a “Price Rate” value associated with each sector and industry. It is located next to the bull or bear image and shows the rate of bull/bear stocks. Ideally, you want to see this rate goes up week after week, which means that more and more stocks within the industry move to the bull condition, so industry become stronger and stronger.

Please, pay attention to the “number of symbols” value presented for each group. Some group have very few stocks in it. For example, US industry “Conglomerates” contains very small number of symbols (please, go to Yahoo! Industry Center – http://biz.yahoo.com/ic/ – for details). Low number of analyzed stocks does not necessarily mean that you cannot use this type of analysis. Just make sure that number of stocks included into analysis is large enough to cover majority of stocks in the sector, in other words is large enough to be used for statistic analysis.

After you identified the best sector or industry, you can go and select stock within this industry. Just click on industry name and you will be redirected to the Stock Screener, where you can select stocks by sector and/or industry, use different views (trader, investor or mixed), see and filter by fundamental numbers along with technical analysis. On top of that, for every stock you will have access to it’s industry price chart.

This is how I use S2O Pro services today to find an A+ stock in an A+ industry.

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