This tutorial was originally titled Make Sector Trading Your Greatest Relative Strenth

and was recorded at the Online Trading Expo

Sector Trading Strategies

Turning Steady Profits
Even in Stubborn Markets

Deron Wagner

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Copyright 2001, Uptick Consulting 4/8/2002
Introduction
● Learn how to trade various market sectors
● Based on relative strength or weakness
● Increase daily trading opportunities
● Minimize risk
● Maximize profits

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Copyright 2001, Uptick Consulting 4/8/2002
Fundamentals of sector trading
● Follow institutional money flow
● Rotate into strong sectors (buy)
● Rotate out of weak sectors (sell short)
● Learn reciprocal relationships

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Copyright 2001, Uptick Consulting 4/8/2002
The Realm of Sectors We Trade
TECH STOCKS (MOSTLY NASDAQ)
COMPUTER COMPUTER COMPUTER
BIOTECHS INTERNETS NETWORKERS SEMIS SMALL CAPS WIRELESS
HARDWARE SOFTWARE STORAGE
$BTK.X $HWI.X $GSO.X $IIX.X $NWX.X $SOX.X $RLX.X $WSH
BBH SWH HHH SMH WMH
Top-tier PC Hardware OEM's Productivity Fiber-Channel Mega ISP's Enterprise CPU's Always check the Cellular Voice
Bio Sector MSFT (FC) Equipt: ATHM Networking Equip AMD intraday volume and Service Providers
Heavyweights AAPL ADBE BRCD *** AOL (Switches/Routers) INTC spread AWE
AMGN CPQ INTU EMLX *** ELNK CSCO TMTA CVAS NXTL
BGEN DELL PSFT FNSR eCommerce CS Graphics-Video FSII PCS
DNA GTW SYMC JNIC AMZN EXTR ** ATVI IDCC VZ
HGSI ** Unix Workstations eBusiness Apps MCDT EBAY ** FDRY ELBO IO Wireless Local Area
IDPH HWP BEAS QLGC Online Advertising Backbone Routers NVDA ***** MGL Networks (LANs)
IMNX SUNW BVSN Storage Hardware CNET AVCI PXLW OIL AETH
MLNM Conglomerates IWOV EMC DCLK JNPR *** RMBS SCOR PROX
Genetic Mapping IBM SEBL NTAP YHOO Next-Gen Packet THQI XOMA SBL
Research LXK EDA - Electronic SNDK Infrastructure (Web Switching & Mixed-Signal XCAR
AFFX Manufacturing Design Automation STK Hosting, Portals, Mux'ing Equipt Datacomm Plays Note: we are just
CRA FLEX CDN Storage Multimedia) CIEN ** AMCC ** starting to build the
GENE SANM SNPS Networking EXDS ONIS BRCM *** small-cap sector so
GENZ JBL MENT Software RNWK SCMR CNXT suggestions & input for
IVGN CLS Development Tools LGTO CMGI *** RBAK IDTI good smallcap stocks to
MEDX Handheld CPWR VRTS B2B Optical WAN/Telco PMCS *** consider for inclusion is
MLNM * Computing RATL Storage FMKT Plays (OC-12+) RFMD appreciated. Please limit
Cancer (PDA's) Application Peripherals INKT AFCI VTSS suggestions to average
ABGX HAND Management ADPT ITWO ALA STM daily volume >100k
CELG PALM NETA PCLN GLW ** TXCC shares/day.
CEPH RIMM CTXS JDSU Mixed-Signal
DNA Test Hardware MERQ LU CRUS
IMCL A MUSE NT * IRF
MYGN TER PRGN SONS LLTC
VRTX TEK QSFT Cellular Telephone MXIM
Diabetes Entertainment HW/SW NSM
INHL ERTS CMVT Mixed-Signal + DSP Semis - Continued
Heart Disease Security ERICY Conglomerates Superconductors
CORR CHKP *** MOT ADI SCON
CHIR RSAS NOK TXN CDTS
Neurology VRSN *** OPWV Semicustom Logic ISCO
ELN Enterprise Database QCOM *** ALTR
Infectious Apps Cable Modem Hardware LSI
ENZN ORCL MCHP
GILD CA SFA XLNX
MEDI Manufacturing Support LSCC
PDLI PMTC MEMORY
Pharmaceutical ATML
Processing CY
SEPR * MU
NOTE 7-8-01: The Biotech Sector is tricky to Semi Equipment
subclassify (segment). This is a prelimary AMAT * NOTES:
grouping, and we will refine as we research each ASML Hot List
Company. If you are a Biotech expert, please CREE *=Degree of Demonic
report for duty on the Biotech sector team!
MASTER STALK LIST (Sector Model) KLAC possession;
LRCX Devil Stocks
NVLS
 OTHER MARKET SECTORS (MOSTLY LISTED)
FINANCIALS DRUGS & HEALTHCARE ENERGY COMPLEX
CHEMICALS & TELCO
BANKS &
BROKERS PRECIOUS DRUGS HEALTHCARE RETAIL SERVICE
FINANCIALS
METALS POWER, UTILITIES OIL COMPANIES PROVIDERS
$BKX.X $XBD.X $CEX.X $DRG.X $HCX.X $XOI.X $RLX.X $XTC.X
PPH TTH
Consumer Financial Traditional Brokers Chemical Major Drug Companies Healthcare Power Sector Oil Producers Department / Discount ILEC's (Incumbent
Services AGE Manufacturing Equipment and (High Beta) AHC Stores AT
AXP GS APD BMY Supplies ETR CHV MAY BLS
FNM LEH PX JNJ BAX CPN KMG FD SBC
FMC MWD Plastic & Rubber LLY BSX Alternative Energy MRO WMT Q
Money Center SCH MMM MRK GDT FCEL OXY TGT VZ
Banks MER DD PFE MDT PLUG P S Major IXC's (Inter-
BAC Discount Brokers ROH Second Tier STJ BLDP RD JCP Exchange Carriers)
BK NITE DOW ABT Healthcare Facilities HPOW SUN KSS DT
C AMTD AHP HCA BCON TX Grocery Stores FON
FBF Precious Metals PHA THC IMCO UCL ABS T
FTU ABX TTP $DUX.X XOM KR TMX
JPM ECO SGP Traditional Utilities $OSX.X SWY WCOM
ONE HM EPG Oil Service (Drillers) Drug Stores CLEC's (Competitive
Regional Banks PDG WMB BHI RAD Local Exchange
PNC NEM SO CAM CVS Carriers)
PVN DUK DO WAG BRW
STI AEP HAL Electronics Stores GX
USB DUK KMG RSH LVLT
WFC Note: We are just NE BBY Wireless Svc
FITB starting to build out the PTEN CC Providers
KEY ENERGY sector, a lot of RIG Apparel Stores AWE
MEL changes pending in the SII ROST VOD
NCC next release of this SLB GPS PCS
NTRS spreadsheet. Input TDW LTD
Insurance welcome from ANF
Companies knowledgable Intraday TLB
$IUX.X members. Specialty Stores
HUM BBBY
UNH SPLS
WLP COST
ALL TOY
AIG Home Improvement
AFL LOW
CNC HD
SPC Consumer
UNM (non-cyclical)
AET KKD
CB MCD
CI KO NOTES:
HIG SBUX Hot List
LNC
PGC
AOC
PGR
SAFC
MASTER STALK LIST (Sector Model)
A few examples of Typical Sector Rotation

OUT OF INTO

Technology sectors Drugs

Oil Transports
Broader market Gold/Utilities

Obviously, the inverse of these relationships is also true.

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Copyright 2001, Uptick Consulting 4/8/2002
The sector tracking stocks (holders):

QQQ (Nasdaq 100)

SPY (Spyder/S&P 500)
DIA (Diamonds/DJIA)
BBH (Biotech)
PPH (Drugs)
SMH (Semis)
SWH (Software)
TTH (Telecom)
WMH (Wireless)
HHH (Internets)
OIH (Oil Service)
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Copyright 2001, Uptick Consulting 4/8/2002
Four keys to sector trading
● Always trade with the trend of the markets
● Trade sectors showing the most relative
strength or weakness to the markets
● Trade the leaders, not the laggards
● Remember that volume speaks volumes!

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Copyright 2001, Uptick Consulting 4/8/2002
Summary
● Determine trend of markets
● Find sectors with relative strength or
weakness
● Trade the high-volume leaders in each
sector

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Copyright 2001, Uptick Consulting 4/8/2002