A big picture analysis of stock trends within a sectorThis kind of analysis helps in picking right stocks like the big boys do.
The chart above showcases the normalized EMA lines of all stocks within the Consumer Services sector. By utilizing EMA(moving averages) lines instead of stock prices, we can observe a smoother and clearer representation of price movements across various stocks.
On the left side of the chart, the upper half displays the price chart of Marriott International (MAR), while the bottom half illustrates a custom candlestick chart composed of approximately 25 stocks within the Consumer Services sector. This sector chart reveals a striking similarity to MAR's price movement, despite MAR's relatively small 6% weightage in the sector calculation.
A closer examination of the EMA lines on the right side of the chart reveals that most stocks within the sector have exhibited similar price movement, underscoring the high correlation among these stocks. This phenomenon of similar price movement suggests that stocks within a sector tend to move in tandem, offering valuable insights for sector-based trading strategies.
Few EMA lines(stocks) are flat or went down and most other stocks went up in line with the sector. Investors who invested in those uptrending stocks will take profits while the ones who invested in those non performing stocks would lose out on the profitable opportunity that created by sector up movement.
Stay tuned for my next update, where I'll reveal how to use performance lines beside sector chart to uncover top-performing stocks within the sector that outshine their average-returning peers.
What's your take on this sector-wide correlation? Share your thoughts in the comments below!