Prudent Trader Sector Analysis Introduction

The Sector and Industry Group data will be updated twice weekly on Wednesday and Friday evenings. The data on individual stocks contained within Industry Groups is updated nightly. I’d like to thank all who participated in previewing this section.

A Top -> Down Approach to stock selection

The Prudent Trader is currently utilizing the Morningstar definitions of sectors and industry groups as supplied by TC2007. The database contains nine (9) very broad market sectors (herein referred to as super-sectors) as defined by the first number of the MG groupings (see table below). These nine (9) super-sectors are then broken down to 31 sectors contained in the nine super sectors. The 31 sectors are then broken down to their industry group components (209 industry groups) within those 31 sectors. Finally to the ~ 6,900 stocks contained within the 209 industry groups and sorted by industry group.

A top -> down approach to trading looks for agreement in five important areas of market action:

1) Overall market;
2) Super-sectors within the market;
3) Sub-sectors within the super-sectors;
4) Industry groups within the sub-sectors;
5) Finally individual stocks within an industry group.

When the market is trending up, we want to look for the strongest and possibly new emerging sectors within the overall market. Once identified, look for the best performing industry groups within that sector, then on to the best performing stocks within that industry group. Sounds confusing, but it’s not really once you become familiar with the terminology.

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The nine (9) Super-sectors and their respective sub-sector components are:

1. BASIC MATERIALS (MG numbers beginning with 1) – CHEMICALS, ENERGY, & METALS & MINING.
2. CONGLOMERATES (MG numbers beginning with 2).
3. CONSUMER GOODS (MG numbers beginning with 3) – CONSUMER DURABLES, CONSUMER NON-DURABLES, AUTOMOTIVE, FOOD & BEVERAGE, & TOBACCO.
4. FINANCIAL (MG numbers beginning with 4) – BANKING, FINANCIAL SERVICES, INSURANCE, & REAL ESTATE.
5. HEALTHCARE (MG numbers beginning with 5) – DRUGS, & HEALTH SERVICES.
6. INDUSTRIAL GOODS (MG numbers beginning with 6) – AEROSPACE/DEFENSE, MANUFACTURING, & MATERIALS & CONSTRUCTION.
7. SERVICES (MG numbers beginning with 7) – LEISURE. MEDIA, RETAIL, SPECIALTY RETAIL, WHOLESALE, DIVERSIFIED SERVICES, & TRANSPORTATION.
8. TECHNOLOGY – (MG numbers beginning with 8 ) – COMPUTER HARDWARE, COMPUTER SOFTWARE & SERVICES, ELECTRONICS, TELECOMMUNICATIONS, & INTERNET.
9. UTILITIES (MG numbers beginning with 9).

Data does not appear for these nine super-sectors, however the data supplied is for the major sub-sectors; their industry group components; and individual stocks contained in the aforementioned industry groups. In building diversified portfolios one should diversify across the super-sectors above prior to any diversification within those sectors. Market rotation is most often across super-sectors and sub-sectors; hence the reason for said diversification.

Once you become used to the data provided I believe you will easily be able to narrow your search for stocks to buy, whatever the current environment may be.

If you find a sector you like, click on the link to view the industry groups (and their respective data points) within that sector, to find where the action within the sector is coming. Once identified click on the link to view the stocks within that industry group, along with the technical data on those issues. Click on the links provided to view a current chart and/or to research the company’s fundamental data position. The chart links are courtesy of Stock Charts.com, The fundamental data links are courtesy of MSN Money.

Using a top down approach to trading will, in my humble opinion, improve your perspective on the market and give you a framework for making quality stock selections. You will also become very cognizant of sector rotation and it’s effect on the overall market.

The goal is to simplify your research:

1. First by Sector
2. Then by Group’s within the Sector
3. Finally Selecting Individual Stocks.

Quick Notes: You can click on any underlined heading to resort by that columns data.

First -> Please review what the data columns – hit your browser’s back button and click on definitions.

Requisite Disclaimer: The Reports, Charts, and commentary are provided by Prudent Trader.com as a service to its visitors and may be used for informational purposes only. PrudentTrader.com is an independent electronic publication. The publisher of The PrudentTrader.com is not a registered investment adviser or a broker dealer and is not acting in any way to influence the purchase of any security. Our technical analysis of stocks, articles, and other features should not be construed as investment advice. It is meant to be a starting point for further research. An investor’s best course of action must be based on individual circumstances. You are responsible for conducting your own research on stocks that appear interesting to you. You must assess the risk of any trade with your broker, or investment advisor, and make your own independent decisions regarding any securities mentioned herein. The author, and any associates and affiliates may have positions in some of the listed stocks. PrudentTrader.com is published in accordance with The Investment Advisers Act of 1940, Section 202(a)(11)(A)-(E), which excludes certain persons or firms from the definition of an investment advisor.

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