• : January 17, 2021
  • : Prashant Shah

D SECTORS

We have recently created a tool called D-Sectors for analysing the performance of sectors. It is a very useful tool and presents all relevant information in a very simple manner. 


There are four important parts to perform sector analysis.

  • Price trend
  • Performance of the sector versus Broad market index Nifty
  • Performance of sector compared to other sectors
  • How stocks in the sector are behaving

D-Sectors considers all above points and score the sector. Score moves between 0 – 60.
Score above 50 are strong performing sectors and shown in dark green color. Score below 20 are strong underperforming sectors shown in dark red color. Shade of Green and Red color depends on the score. 

RD

Hance, a strong performing sector would mean:
 
  • Price chart of sector is bullish
  • It is outperforming against Nifty
  • It is outperforming most of the other sectors
The trend of all stocks in the sector is shown in each box.

It is divided in four parts:

Bullish swing: Number of stocks in the sector trading in bullish trend

Bullish breakout: Number of stocks in the sector trading above its previous swing high

Bullish momentum: Number of stocks in a strong bullish momentum, and witnessing follow-up buying

Bearish momentum: Number of stocks in a strong bearish momentum, and witnessing follow-up selling

It helps us in analysing how stocks are behaving in the sector. The outperformance or underperformance of the sector can be judged by looking at how many stocks in the sector are contributing. It will give us idea if a greater number of stocks are contributing or it is moving because of heavy-weights in the sector.

Above reading is applicable on short-term, medium-term, and long-term. These options are given in D-Sectors.

BB

If a sector is bullish in medium-term, underperformance in short-term could be an opportunity to trade pullback price patterns.

We often see sector rotation happening in the market. Some sectors perform while others are consolidating. There are some weak sectors even when markets are performing.

Chart of D Sectors score can be very helpful here:

D Sectors score = Price + Relative Strength versus Nifty + Relative Comparison with other sectors
Chart of D Sectors

score of last five sessions is shown in the sector box. You can put the cursor on the chart and check the past score.


BB
The trend of D Sectors can help us analyse which sectors are continuously outperforming / underperforming or stable, and which sectors are improving or weakening.

Long-term D Sectors score will be mostly stable, it is a good indication when you see a change in trend in that timeframe. It can offer good opportunities in short-term and medium-term.

Let us take example of current trend of couple of sectors:

IT Sector

Long-term

BB
 
Outperforming in long-term. All stocks in the sector are in strong bullish trend.

Medium-term
 
BB

Outperforming in medium term as well. Some stocks are correcting.

Short-term

BB
 
Moving down in short-term. Most of the stocks are in bearish trend in short-term and momentum of many stocks is bearish.

Now the question is: whether short-term trend correction in IT a beginning of a long-term trend reversal, or it is an opportunity to invest!

Rule of thumb: We will not benefit more by questioning the long-term trend. Believe that it will remain intact unless there are strong evidence of reversal.

A sector in strong bullish trend in long-term will go through the correction and rotation in the short-term.

There are two major triggers to judge this:
 
  • Trend of Nifty: If it is not bearish, then short-term correction in long-term bullish sectors is an opportunity to trade bullish patterns.
 
  • Trend of stocks in the Sector: Look for the hint through number of stocks participating in the short-term. Greater number of stocks start turning bullish and a smaller number of stocks in bearish momentum are signs of improvement.

Vice versa for bearish long-term trend.

When number of stocks in bullish swing falls below 10% in medium-term and long-term trend is still bullish – it is a dependable oversold zone.

Let us have a look at one more sector: PSU Bank

Long-term
 
BB

Score improved in long-term during last month. Many stocks turned to bullish trend from long-term bearish mode. 

Medium-term



Top performing sector in medium-term. Breadth moved in overbought zone because most of the stocks turned in bullish trend. It was followed by a consolidation seen during last few sessions. Number of stocks in bullish breakout and momentum have improved.

Short-term



All stocks corrected in short-term and some stocks witnessed strong selling, but sector performance is comparatively better. If stocks in bearish momentum starts reducing, it will be a bullish hint.


Below is a short-term D Sectors chart. Have a look at patterns in circled areas.