And my wish for myself is that I can be cured of the carking crime of alliteration!
8]
Now let's look at the Industry Bell Curve:
Although there are four sectors above 70%, today I'm going to focus on Steel & Iron, the only sector registering above 80% on its BPI.
As we've seen before in previous posts (August 20th & October 1st below) , this is one heck-of-a volatile sector. Above we can see that this month it broke through two earlier resistance levels at 80% and 84% (the purple lines).
Now let's look at the Industry Bell Curve:
Although there are four sectors above 70%, today I'm going to focus on Steel & Iron, the only sector registering above 80% on its BPI.
As we've seen before in previous posts (August 20th & October 1st below) , this is one heck-of-a volatile sector. Above we can see that this month it broke through two earlier resistance levels at 80% and 84% (the purple lines).
"That doesn't mean anything, does it? Didn't Teeka say that BP charts can stay overbought for a long time?" Indeed he did. He also that, "Generally speaking, sectors will spend more time in an overbought state than they will in an oversold one." (ETFMT Companion Guide, slide 184)
But the action in the Steel & Iron sector BPI doesn't really have to do with the overbought/oversold issue -- and here's the lesson for today: It has more to do with the history of the sector, and this is why it's so important to study the BPI for clues to the past performance and patterns.
Some sectors can spend months above 70%. For example, in June-July of 2003, the Gaming sector moved above 70%, tested resistance once, then climbed to 92% by January 2004. It wasn't until April or May that it dipped below 70% again. That's almost a year.
In contrast, Steel & Iron doesn't hang out long above 80%. The last three times it crossed above that threshold, it stayed there for about two weeks in the first two instances (April and May 2007, circled in green) and for one week in the last (May 2008, also in green). The earlier instance, circled in orange, shows it lingering in the 80s for a little over a month (it's difficult to gauge exactly because the Investors Intelligence BPI chart differs a bit from its line chart). So this sector has a love/hate relationship with that 80% line.
Does this mean that it will drop any second now? I'm not in the habit of predicting the future, but I think the steel sector presents a great potential shorting opportunity.
So do some homework for yourself now: Make your picks for best candidates (for instance, the November 6th CASH Alert on this sector listed the ETF SLX and the stocks AKS, X, and MT).
Then when that 70% CASH Alert Sell signal comes, you'll be ready to profit.
