Today's Quote: “The lack of money is the root of all evils.” Mark Twain.

Today is a continuation of the use of sectors as watchlist generators. We talked yesterday about the power of sector rotation and why we want to keep our finger on the pulse of sectors. Today we want to discuss just how we go about organizing our sector watch list.

The first step is to set up a list, or a page of charts, or both, that has a nice summary of all or several sectors that make up the market. We have such a list that you can view made up of ETFs (Electronically Traded Funds) that has a link down below in the ETF section. The goal here is to look at this list or series of charts several times a day to pick out the sectors that are up and down on the day. This will be a good indication of where the money is flowing, out of the weak sectors and into the strong sectors.

Once we know what sector is strong or weak we have two choices. We can play that sector as we would for an individual stock, through the use of ETFs. Or we can look inside that sector and dissect the various stocks that make up the sector to find the strongest or weakest stock. So to do this in a quick organized manner we need to have sector lists entered into our trading platform as well. Not just the list, but more importantly enter each stock into its own intraday chart. This way we can tell at a glance which stock patterns are looking bullish or bearish. Do this for each sector which you are tracking on your master list.

So an example of how this works would be as follows; during the first hour of the day you open your sector lists or sector page full of charts and you notice that the semiconductors are the most up on the day and the biotechs are the most down on the day. You check the semiconductor stock pattern to make sure that it is not extended to the upside, and likewise for the biotech pattern to make sure they are not extended to the downside. Then you open up your semiconductor stock list and look through the various stocks that make up the semiconductor sector and look for the strongest patterns. Pay special attention to looking for the strong patterns when the sector itself is actually pulling back. Likewise look at the stocks that make up the biotech sector. Pay particular attention to the stocks that are weak even when the biotech sector is pulling back.

These stocks that rise to the cream of the crop should go on your watch list for possible upcoming plays. You have a greater chance of making money on your individual stock pattern when you know the power of big money is either buying in the direction of your long, or selling in the direction of your short.