Those who follow me know that I'm constantly monitoring the current leaders and watching for new leadership. It's one piece of technical analysis that helps in selecting our portfolio stocks. The best way to beat the benchmark S&P 500 is to follow the strength so long as it provides us consistent relative strength. My preference when evaluating sectors and industry groups is to review relative strength on a 3-year weekly chart. I think that time period is plenty long enough to ensure that we're not just seeing a quick bounce. I follow leading industry groups and their relative PPOs. Once they cross centerline resistance, they get my attention. If they can accelerate relative to the S&P 500, all the better.
Before I give you an industry group that's showing accelerating relative strength, I want you to check out a group that, not too long ago, began showing leadership with its relative PPO crossing into positive territory. It hasn't looked back since. Check out the Home Improvements group ($DJUSHI) vs. the benchmark S&P 500:
At the end of April, we saw a relative breakout and a relative PPO centerline crossover (first blue-dotted vertical line). That latter signal tells us that, on a relative basis, home improvement had begun to outperform the S&P 500. Two months later, we saw an absolute price breakout (second blue-dotted vertical line). Since that time, home improvement stocks have been a great area to invest/trade in. Lowes Companies (LOW), RH and Wayfair (W) are just 3 stocks in this space that have crushed the S&P 500. W has helped lead our portfolios at EarningsBeats.com and it's the simple relative strength evaluation that led to the group and to W.
Now, we have another industry group that appears to be following in the footsteps of home improvement.
Commercial Vehicles & Trucks ($DJUSHR)
The first thing to understand is that money is finally rotating to industrials (XLI). The best way to visualize this is to look at the same 3-year weekly chart of the XLI and compare its performance to the S&P 500:
Transportation stocks ($TRAN) broke out to all-time highs last week, which I believe will help the industrials begin to command more of Wall Street's money in Q4. If that's the case, then it certainly stands to reason that we should pay attention to commercial vehicles & trucks ($DJUSHR). Check out the recent improvement here:
The three blue-dotted vertical lines paint a picture quite similar to what we looked at above with home improvements. The DJUSHR is showing not only absolute strength, but also relative strength AND accelerating relative strength. We want to be considering investment in an area like this. In fact, there's a very good chance that this strength leads to at least one stock in this industry group being selected as part of one of our portfolios next month. I plan to feature my favorite stock in this group in our free EB Digest newsletter on Monday. It's currently in our Strong Earnings ChartList and our Raised Guidance ChartList. Its fundamentals are accelerating just as fast as its technicals. Interested in seeing which stock? Simply CLICK HERE and sign up for our EB Digest newsletter, published 3x per week. There's no credit card required and you may unsubscribe at any time.
Also, on Monday, October 19th at 4:30pm ET, we'll be announcing our first Model ETF Portfolio. We'll be applying many of the same rigid requirements that we've applied to our stock portfolios. These have been crushing the benchmark S&P 500, as you can see from our home page at www.earningsbeats.com:
If you'd like to see which ETFs are worthy of inclusion in our very first Model ETF Portfolio, alls it takes is a fully-refundable $7 30-day trial. Start your subscription today RIGHT HERE!
Happy trading!
Tom
