Sectors with Potential.

Inside the stock market universe, there are different undercurrents. Some sectors are outperforming, while some are under performing. This cycle of performance itself has two components – transitory and long term. There are sectors which go through a rally for a short period – transitory. These bursts of enthusiasm occur mainly due to short term interest in the sector, which fizzles out soon enough.

Long term sector outprformance is what traders as well as investors should be looking at. Such moves last long enough for traders to make money.

This concept of transitory and long term outperfomance applies to individual stocks also. If the broad market is falling, most stocks will go with it, therefore what we are seking is outperformance rather than a different path.

Just to give an example, last year around August 2009, I was upbeat on a stock called V-Guard.Then it was selling around 80. Now, a year later it is selling around 160. That is a 100% return. Probably, there are many other stocks which have given similar returns over the past 1 year, but we do not know about all of them – I had the charts of V-Guard which I saw was likely to outperform. My point is: if you get a stock like this, stick with it. There were periods when the stock was doing nothing – that’s part of the market, so far the charts hold – which means prices do not go below your cutoff point, we have to accept trading ranges in long term uptrend.