Transcription
Okay, cool. Third and last part. Welcome back, guys. Welcome back, ladies and gents. Uh, JV Trading back with another educational video. This is going to be the final video of leading stocks and leading sectors, why they matter, etc. So, yeah, let's just hop right into it.
We kind of left off here talking about GDP and which sectors are strong and weak depending on market conditions and inflation rates. So, cool. Continuing on the topic of inflation. Inflation measures how much prices are increasing across the economy. Inflation can hurt the purchasing power of consumers, but some sectors can still thrive in this environment. For example, energies, energy materials, and utilities are more often resilient during inflation because they deal with physical products that can increase in price. On the other hand, sectors like consumer discretionary and technology might struggle in high inflation environments because consumers may cut back on non-essential spending and rising costs can eat into company profits. So, pretty much just rewarding what we talked about over here, basically just going over for how people kind of tend to spend their money when the market is hot or pulling back, yada yada.
Employment and unemployment. I know a lot of you guys watching these videos are this one right here, and you want to get into trading. That is a no-go. You must beat this one to actually trade and become successful. Without this, you're never going to make money. The level of employment in the economy can also have a big impact on sectors. When unemployment is low, people tend to have more disposable income. Again, if you work a job, you have money, bro. You won't be asking for handouts, which can boost sectors like retail and travel. During periods of high unemployment, more defensive sectors like healthcare and utilities tend to outperform because people still need healthcare services and basic utilities regardless of the job market. Again, jobs have nothing to do with you needing toilet paper to wipe your butt, water to drink, and electricity to keep you warm, and keep the lights on.
Earn and sector momentum. Switching it up now. Earning season is a key period where sector momentum can be identified. I love earnings, plenty of EPS to play. Strong earnings from companies within a sector often translate into positive performance for the entire sector. Usually be or become a leading stock if they do perform well. Earning surprises, when a company reports earnings above analyst expectations, it can indicate strength within a sector. If many companies in a particular sector outperform earning outperform earnings estimates, it suggests strong fundamentals can also lead to sector-wide gains. So, again, multiple stocks that have earnings that are within the same sector, if they all perform well, that sector can be, you know, pushing really nicely, and it can be something that will catch your eye and something you're going to want to get on and take advantage of as soon as possible.
Revenue growth versus profitability. A lot of you again are not this because you don't have this. You are this. Revenue growth versus profitability. Some sectors may show revenue growth but not profitability, which could signal the need for further scrutiny. Technology companies often have high potential or high growth potential but may face profitability issues. Sectors like consumer staples or healthcare have tend to be more stable and profit-driven. Again, when you have supply and demand when it comes to a company or a product, something that's needed, something that's a staple will always have a stable income, whereas something like a tech could have, you know, like an outburst of a ton of money and people buying into the company, but in the meantime, before their product is fully developed or sold or distributed, whatever that may be, there's a lot of testing process, there's a lot of money investing that goes along within that before it becomes an actual, you know, a product or something that's distributed or sold to other companies, etc.
Earnings guidance. Guidance from companies about future earnings and growth potential can provide insight into sector outlooks. Positive guidance from a leader in a sector can indicate broader sector growth. Again, see, basically companies that have earnings coming up, if they're performing, you can most likely see the sector tend to kind of be pushed up along with that.
Number four, news, trends, and technological innovations. Market trends and external events such as regulatory changes or technological innovation can drive growth in specific sectors. Technological disruptions, new technologies, artificial intelligence, autonomous vehicles, blockchain can propel sectors forward. For example, the rise of AI has driven substantial growth in the tech sector. Again, AI is kind of like an industry within the sector in the technology sector, especially in semiconductors and cloud computing. Sectors like healthcare may also experience growth due to innovations in biotech, pharmaceuticals, and digital health. So, when you see innovations and growth within industries within a sector, you're most likely going to see the sector being pushed as well, as long as, you know, there's more gain than not within those industries within the sector. Again, kind of like an umbrella. Think of the sector as the umbrella. Industries, stocks, stocks push the industries, industries push the sector.
Global events. Geopolitical events such as trade agreements or tensions can impact sectors differently. For instance, defense and aerospace may benefit from increased government defense spending, while consumer sectors might suffer from international trade disruptions.
Sentiment and market perception. Investor sentiment driven by macroeconomic news or industry trends can influence sector rotation. For instance, if investors become more risk-averse, they may move from growth sectors like technology to defensive sectors like utilities as a safe haven. Again, kind of like hedging towards more of the volatile, riskier stocks such as tech, which, you know, you need more money, it needs to be more in a bullish market, they have more money to spend, more money to buy things, to test products out, etc., whereas no matter what, you know, the defense stocks will stay pretty, pretty, what's it called, stable, obviously ups and downs, but inherently a little more stable.
Cool. Number five, technical analysis of sector trends. Technical analysis can reveal the momentum and trends in sector performance. By utilizing a combination of charting tools and technical indicators, traders and investors can identify leading sectors early. Price action, PA, we all know what this is. Personally, we use support and resistance methods within price action to mark our key levels, trends. This should be flipped to mark out. Yeah, I botched this. Price action. We can use resistance methods within price action to mark our key levels, trends, and get an overall feel of where a sector's price action could go to.
Moving averages, MA 10, 20, 50. The only ones we use. Moving averages can help identify the trend in a sector. A rising sector ETF that is consistently above its 50-day or 200-day. I used to have 200-day on there. Don't really need it. You can totally have it. Again, personally, I only focus on the 10, 20, and 50 averages. A signal that the sector is in an uptrend. Conversely, a drop below these moving averages might indicate a weakening momentum. So, again, don't use this as a confirmation.
Confluence. Volume analysis. Volume, more of a confirmation than a confluence for me. Volume is one of the most key things when it comes to breakouts, stocks, trends, etc. Volume can confirm the strength of a trend. If a sector ETF or stock is experiencing rising prices along with increasing volume, it may indicate that the sector is gaining strength. Conversely, rising prices with declining volume may lack or might signal a lack of conviction and suggest a potential reversal. So, again, take this with a grain of salt. Normally, when it comes to breakouts, trim three to five days after, primarily because that's when we start to see volume die off. And when you see a stock moving upwards with volume that's dying down, you're thinking, okay, buyers are getting weak, sellers are starting to come in, etc. Just like when we see price action tighten up, we're seeing sellers die out, but instead of the price action selling off, it's going sideways, indicating it's just getting contracted. Sellers are dying off, but buyers are still in there, making the stock tighter and tighter and tighter. And then when it comes to that pinch, either buyers or sellers, primarily if it's a bullish setup, you're going to see buyers step in, and we're going to see that breakout. And depending on, you know, how sellers act on the key levels that are above the breakout level, we'll see if the stock either continues higher or if it gets sold out. But that's again, just kind of like different perspectives of looking at it. But like, really important to understand how volume and price action kind of intertwine and how they like communicate with each other. Because once you're able to understand that, your intuition is built, you know how to look at things, and it's going to be kind of like looking at the back of your hand. When you see something, you're going to know what decisions to make. So definitely focus on that. Volume analysis confirmation is great.
And that brings us to our conclusion. Overall, understanding leading sectors and then using our scanners to find leading strong stocks with our criteria that match the sector are going to be extremely key when finding a winning setup. Like I say, it's not always about the actual setup or how pretty it looks, the price action, the technicals, anything like that. Sometimes it's more just about the context behind it. If it's a strong stock, at the end of the day, the shape and setup isn't what fuels the stock to go higher. A triangle and two lines on the chart is not the reason why the stock goes up. It's the underlying condition behind it that acts as fuel to push the stock higher, whether it's a strong stock, strong sector, catalyst, or all three of those.
Yeah, that basically brings me to my conclusion. I hope you guys kind of enjoyed and understood how to actually identify leading stocks within leading sectors. Please implement this when it comes to swing trading breakouts. Don't dismiss this. This is very important. If you're too lazy to study it, you will not become successful. Understand it is not always about the actual technicals, but sometimes it's the context behind it. What is that fuel? What is that gas pushing the stock up higher? The shape, the pattern, the flag, it's just for us to get the most optimal entry, risk to reward, etc.
But yeah, that concludes the video. Again, please like, subscribe, leave a comment if you guys want. Hope you enjoyed. If you guys want to follow my Instagram, it's @JacobViaVan. I'll leave the link in the description. And then again, if you guys want to apply for the one-on-one mentorship where I go over all this with you personally, feel free to fill out the application to see if we can work together. But yeah, without further ado, have a good rest of your day and yeah, peace.