• : December 1, 2020
  • : Prashant Shah

Sector Analysis using Ultimate Matrix and RS Matrix tables

In Options Talk -18, I mentioned briefly about various sectors and why IT is bullish even though it was not performing in short-term. I briefly mentioned about how to read performance of sectors in short-term keeping overall trend in mind. Here is the explanation in detail:

Run Ultimate matrix scanner on 0.25% box-value on TradePoint Web or Desktop.

It compares the performance of each sector against every other sector and scores are assigned based on that. So, the denominator is dynamic in this method. Score is 1 if ratio chart against a particular denominator is bullish and score would be bearish if ratio chart is bearish. Total score reflects the relative performance of the sector in relation to the remaining sectors.

Here is the basic interpretation of the Ultimate Matrix score for sectors:

If the Total Score > 10 and above Nifty = Bullish

If the Total Score < 10 and below Nifty = Bearish

Top 3 or 4 sectors are leading the move and bottom 3 – 4 sectors are underperformers. Remember,
When there is a breakout in price chart of a sector, and it is outperforming most of the other sectors = bullish breakout is strong.

Similarly, when there is a bearish breakout and sector is underperforming most of the other sectors = bearish breakout is strong.

Below is a table showing current score on 0.25% of Ultimate Matrix along with comment on pattern.

So, above table shows that Banks, Financial sector, IT and Auto are outperformers and price pattern is bullish. Interestingly, FMCG is bullish on price chart but relative performance is not at par. Pharma and Metals are underperforming but price pattern is corrective.

This gives us idea about peer-to-peer performance of sectors and price pattern on swing charts. Remember, it is calculated on P&F columns, so these scores are purely based on price patterns irrespective of time.

But 0.25% shows us patterns for short-term. Sector rotation keeps on happening and every sector goes through cycle of trend, breakout, retracement, sideways and volatility phase.

We can run Ultimate matrix RS scanner on 1% box-value chart for medium-term price pattern and 3% for intermediate-term.

Below is a table showing that:

IT, Auto, Pharma are leaders of this uptrend being bullish on higher box-value. PSU bank, PSE, CPSE are underperformers.

IT and Auto are outperforming in all timeframes, breakout pattern in stocks of these sectors should be looked at.

Pharma is underperforming in short-term but overall bullish. Support or pullback pattern in stocks of this sector should be looked at.

But is there a possibility that Pharma will trigger a major reversal and start underperforming on a higher timeframe? Price pattern will turn bearish in that case.

PSU bank is outperforming in short-term but overall the sector has been underperformer. Trade bullish patterns from short-term perspective. Positional trades need more confirmation.

Pvt banks and Financial services performance are improving on multiple timeframes.

Those who are aware about P&F, RS and Fusion matrix can check the performance of sectors on multiple timeframes against Nifty. Unlike ultimate matrix, denominator is constant in RS matrix. This is also a type of Relative Strength studies that compares sectors against major market index Nifty.

Below is a table showing total performance and ranking score of all patterns on multiple timeframes and the breadth reading of each sector.

You can view this in Sector Matrix in TradePoint (Matrix -> Sector

IT, Auto and Pharma are leaders. Short-term breadth of IT is in exhaustion mode. PSE, CPSE, PSU and FMCG are underperformers.

Please do not focus on examples. I have explained it on current situation but learning the principle is more important.

Method we have discussed above:
  • Peer to peer comparison of sectors on short-term and their short-term price patterns
  • Peer to peer comparison on multiple timeframes
  • Price patterns on multiple timeframes
  • Performance against Nifty on multiple time frames
  • Breadth of each sector All these are objective in nature
The above approach tells us what is moving the market and where we should focus. In all cases, we will trade price patterns for entry, exit and stop-loss. Stock selection is a major issue for people trading stocks in derivatives or investment. For example, if you are following anchor-column follow through pattern and you have multiple stocks in your scanner window. Which candidates should be preferred? You can focus on those which is part of outperforming sector.

When stock is moving, that means company is doing good, micro is good. When sector is moving, macro is good. We should look for price patterns where macro and micro are good.