I'd like to get a general feel for an idea.. no, it's not a hot stock, but this forum gets the attention, that's why I post here.
The idea has to do with stocks that act the same -- meaning, go up at the same time, and go down at the same time. For example, like EAC and SU ... their charts are eerily similar, with major dips and peaks occurring just about in unison.
Supposing one was watching the general market, and suppose one were to identify a group that was active (eg, Diversified Machinery or General Building Materials) ... how useful would it be to find within these groups stocks that have very similar charts?
This idea has been brewing in my head for a while, but watching the market today convinced me to bring this up. I was watching the oil index, XOM, and BQI.. XOM and the index would basically move together, and BQI would follow with a slight delay and more of a "smoothed" action.
I've heard somewhere of "trading the whole group", identifying leaders and laggards.. I'm just not sure how dependable that sort of thing is.
I'll try to find more examples of charts that seem to act together. In the meantime, do share your thoughts..
-------------------- the market is not your mother
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This will show you the direction that the "Big Money" is flowing in and out of IDUSTRY GROUPS". It's owned by INVESTOOLS. It's basicly INVESTOOLS for free.
To know what I mean by the Big Money Chart...go to the investools link and look at the free video at the bottom for "Money Flow. Then go to the prophet.net link for the free "Money Flow Chart"
Yes, these stocks are from the IOG group.. I picked that group because it contains a fair number of stocks, and isn't performing either spectacularly nor miserably.
The question remains, is there any benefit from knowing which stocks seem to act together? I'm thinking up all sorts of rotation schemes, second chances at a missed run, etc etc
-------------------- the market is not your mother
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posted
Well, here's what I've come up with: If you can identify several stocks in an industry group which consistently behave in a similar manner (like TBH & TNE, or PXD & XED, RNP & VNQ, for example), chances are you've found a big money play.
I mean, how else could you explain such close synchronicity between the charts of different companies? Peaks and dips occurring nearly simultaneously? One way I can explain this is that institutional players pick best candidates within a group, and spread their funds over several stocks, over some period of time. What else would have enough clout to move several stocks at once, in the same direction? I'd love to hear an alternative explanation..
Because if this is actually the case, knowing which stocks move together would be quite useful. Having come up with some technical analysis of one stock is handy, and gives some degree of confidence about possible future price movement. But it's just one stock, and, well, who knows what's really going on.
However, with a sub-group of stocks that act the same, I think there would be much higher confidence in a move, once it is identified. This is by the logic that if big money is behind it, the move is real, and likely to last a while. These guys don't turn on a dime; it takes time to move such quantities of money around. And so, a move like that can be.. capitalized upon.
But then, the difficulty lies in finding such "synchronized" stocks...
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