January 31st, 2009

Moving Averages and Leading IBD Industry Groups

The universe I’m referring to is that of U.S. stocks. One of my biggest frustrations with the Telechart charting service is that they lump ETFs in with all other stocks. True, ETFs are traded on the exchanges but they aren’t stocks. If anything, they’re more like mutual funds that are exchange-traded (duh, that’s why they’re called “exchange traded funds”!).

So what’s my beef? It’s that all volume statistics, comparisons, scans, sorts, watchlists – everything is distorted by the inclusion of ETFs. Here are the stats:

All along, while I thought I was playing in a field of about 7000 stocks, I actually had a population that was less than 5000 US stocks. And, yes, you read correctly, there are now 726 ADRs (American Depositary Receipts) traded on US exchanges including foreign ETFs (Telechart includes only 607 of them in their system). My guess is that Telechart isn’t unique and that when everyone reports those statistics, they are reporting on a potpourri of diverse instruments and securities when it comes to advances/declines or up-volume/down-volume, etc.

And what does that mean for you and me? I know what it means for me; it means that I had to redo my stats on tracking the making of a bottom. The updated stats are:

The stats actually show a more constructive reading than previously. A full 25% of stocks (truly stocks and no double short or short anything ETFs) have actually closed above their 90-day moving averages, not an insignificant number. And what types of stocks are among these “leading stocks”. A surprisingly large percentage within the top 11 of 197 IBD’s Industry Groups:

Fully 46% of stocks in these 11 Industry Groups are over their 90-day moving average and 20% are above their 180-day moving averages. Strikingly, over 90% of the 63 stocks in the Gold/Silver Industry Group have crossed above their 90-day moving average and almost 32% are above their 180-day moving average.

Momentum, as represented by stock price in relation to moving average, is one of the key variables in determining Industry Group rankings.

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