May the Onion be with you

The last post, Layer's of ze Onion, may be used as a 'cornerstone' of understanding some of the bigger moves that happen in the market. It took a while to construct (since I do not live and breathe the market 24/7) and was finished a week-ago Tuesday. I felt it needed to be presented on a weekend so as to be best absorbed and reflected upon. I already refer to it over and over myself to find links on market carpets, the ETFs, and much more, and have tried to read the articles attached to the links several times. I can't emphasize enough... the topic is big stuff... it can put the everyday moves of the market into a broader envelope. That post was a building block. Part of the infrastructure, if you will. Much more can be layered on top and should be in order to try to understand what some of the big houses are doing. Ultimately, this can align us properly as well... or at least erase that dumbfounded look from our face when our favorite companies shine and the stocks get decimated anyway, or vice-versa.

For now I want to point out two ETFs that most people have not heard of: XRO and CRO. XRO is a sector rotation ETF... I don't know too much about it at this point other then that it has outperformed the SP over the last two years. The chart is here. CRO is similar except that it rotates between different countries rather then different sectors. It seems to be less liquid (lower trading volume) then XRO. The full comparison charts are here. These may or may not be good investments but I bring them up because it just goes to show the significance of sector rotation in today's market. You know you've made it when there is an ETF for you...

As just one example of how sector knowledge can be expounded upon take a look at TAN, and then at the other solar stocks. Many move in tandem. We are all busy and time is of the essence. A look at sector ETFs may expeditiously clue you into charts that you may need to watch... either of stocks you own or are interested in. The charts look quite similar between TAN and some of the other solar stocks. When I see a chart that has had a large run up in this market start to flatten out, especially going into earnings, and I hold the stocks, I personally would strongly consider taking some or all off of the table. I would dig a little deeper to confirm my moves (and I do not own solar stocks at this time and this is not a recommendation... ) ... but my instinct would be to consider selling in this market... at least until we have proven an upwards intermediate trend (like we had in the spring). That's just me... unless I felt I knew something about the companies or sector that others did not.

Here are the charts of some of the solar companies...






I have to tell you, also, that I have started to look at trend trading software. I don't know if I'll buy it or use it but at the very least I want to know what the big houses may be doing. Also, as I mentioned, correct early trend identification can lead to unbelievable success. Jim Rogers had made his Billions that way. He hasn't done it by using charts as far as I know but by finding fundamentally driven trends extremely early. He correctly identified that the British Sterling would weaken in the 90s and made a ton shorting this currency. More recently, starting around 1the late 90s, he correctly identified the coming boom in commodities. Now a days his focus is on China (and still commodities, especially soft commodities (food, coffee, cotton, etc.)) He is particularly interested in Chinese companies involved in water clean-up and management... this is all for a different post.

The point is that his means of using trends has been very successful. The other main way trends are used are by using technical indicators and/or fundamentals in the stock market. A brief look though can be informative and can show you the concepts of trends and sectors and how integral they are into today's market. Some of the software I encountered accurately predicted market tops and bottoms (with reasonable accuracy) and ditto for stocks. Others were able to distinguish pro investors from retail investors and make sure they were on the side of the pros... interesting when the shift happened where the pros were leaving or entering a stock I encountered the flat pattern in the stock that inspired me to sell the CMED calls (discussed in this post). There is a wealth of information out there. How much you choose to take advantage of depends on what your interests, goals, time, objectives, etc. are. I am just gathering information right now. However... I am not willing to be closed-minded and ignore anything with at least checking it out... At the very least...

Understand your enemy... and if you can't beat 'em... join ;)

"The Yellow Rose Street Beat" is for informational purposes only.