Sector Analysis Summary - PRECISION TRADING LABS
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Sector Analysis Summary

December 13, 2021

There are two approaches to trades: 

  1. Look to catch tops and bottoms to trade major reversals, or 
  2. the more consistent way of identifying a valid trend, sometimes across timeframes, and going with the flow. Trade with the current and ride the wave of sentiment and institutional trading.

Trading isn’t easy. But trading WITH the market or a sector, whether it’s rising or falling, and not fighting the current, is certainly less difficult.

We’ll get to our regular weekly sector analysis in a moment. But here it is in action today. In prior weeks we’ve noted distinct weakness in the basic materials sector, represented by the XLB etf. We said we were looking for a short-term, lower timeframe recovery in the sector to bring XLB up to a price-level where we expect the bigger picture downtrend to resume. The stage for that was set last week with a modest rally in the XLB, which brought the etf up to a region of expected downward price pressure, a short setup we shared with you. Here are the “before” and “after” slides.

CH 1
Yesterday, Aug 2, price popped up to the lower, yellow highlighted region in the above chart, and immediately began to fall. We decided “to express” the trade by buying XLB puts as opposed to simply shorting XLB shares. The interim results of the trade using both instruments are shown in the chart below:

Here’s today’s sector rundown, starting with Sector Performance charts summarizing the last trading week (chart 1), followed by a screen of sector performance based on the behavior of short-, medium- & long-term moving averages (chart 2). These help us find trend-following, high probability setups, like what’s shown with XLB above and our GRMN trade which we summarized a couple weeks ago.

In Chart 2 below, the moving average performance screen shows the state of the 20-, 50- and 200-day SMAs in each sector and how price sits in relation to each SMA. Week-to-week changes in SMA status are highlighted (for the close of 7/30 vs close of 7/23).


  • In a quiet week July 26-30, basic materials (XLB) and energy (XLE) were the strongest sectors, As we said, the XLB rise was useful in the context of a bigger picture down-move, so we’re not racing to go long out of either XLB or XLE, since both have been weak in the weekly chart. In fact, we believe the moderate strength in XLE last week will lead to one or more short opportunities in either the XLE etf or with one of the constituent etf stocks, just like with XLB.
  • On the bullish side, there was some short-term weakness in real estate (XLRE) in the context of major  longer-term strength as the US emerges from the COVID-19 pandemic. Of course, there is huge concern about vaccine refusal and rising infection rates in certain regions/states, and the Delta-variant. But until the charts tell us differently, the bigger picture current in the real estate sector is up, so we plan to identify long opportunities in that sector in the next two days.

Look for our preliminary list of potential trade candidates Tuesday and two high quality setups Wednesday before the market opens!

After all, a tool is only as good as your ability to use it.

I have handed you some valuable information
Now let me show you how to use it. 
You see, information is good… but ACTION is better.
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See you there,



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