The Industry Group Analysis module aims to study the breadth in the underlying industry groups and thus provide a strong background reading of the strength of the current market trend, and its likely duration.
Our report aims to provide:
- confirmation – whether the industry group breadth status supports the current market trend.
- early warning – extreme readings amongst a majority of groups helps identify potential market turning points.
- industry focus – which groups look set to outperform.
Determining industry breadth
We use two principal indicators to measure industry breadth:
- The Industry Group Bullish %
This indicator measures the number of bull trends amongst the 196 IBD narrow industry groups. It is a confirming rather than a leading indicator.
- The Sector Sum indicator
This indicator measures the number of bull trends amongst the 45 broad industry groups. It is calculated using a scoring system rather than as a breadth percentage.
Using the Indicators
Important signals are generated when the indicators change directions at extremes.
Reversals from high levels are bearish for the market.
Upturns from the lows are bullish for the market.
Identifying industry rotation
We aim to identify specific rotations using extreme levels in the relevant group’s bullish percentage indicator.
For example, the semiconductor bullish % indicator, which measures the percentage of bull trends (using point & figure signals) within the semiconductor sector, made its low in August giving a good early indication that conditions within the sector were at last beginning to improve.
The SOX Semiconductor index began to bottom out in September.
|We also suggest suitable stocks and funds to benefit from such anticipated moves.|
The Industry Bell Curve
Each of the broad industry groups is mapped according to its current bullish % breadth reading and is assigned a + or – sign depending if it is in an up or down column on the p&f chart.
We use the bell curve to “eye-ball” market breadth. For example, the bell curve (first chart) in March 2003 was heavily concentrated around the oversold side of the chart and subsequently the industry boxes began to move up out of this region.