How To Read the StarSector Report
by Jason Mitchell

Many traders and authors take a top down approach to trading the markets. This means that they look to buy the strongest share in the strongest sector of the index:

Major Index Performing -> Best Performing Sector -> Best Performing Stock

Some traders use the first tier of the GICS (click on link for more information on GICS) or they may go as far as the second or third tiers.

On this site we will only cover the first tier, that is the main sectors.
The reason for this is that we generally do not take a top down approach. We do use sector analysis in conjunction with our trading but not in the same way as top down traders. We are not suggesting that top-down trading is not a good way to go, we just don't do it.

Our newsletter explains the way in which we fully use the indices and sectors, however as a basic rule we would never take a long position (buy) in a downtrending or bearish sector and we would not take a short position in a bullish sector.

As such we provide one of the tables we quickly refer to in getting a gauge for the market and the main sectors. We can not stress enough that these are NOT RECOMMENDATIONS in any shape or form.

Newsletter subscribers will also receive the table for the second tier of the GICS as well.


The Update Date - How Does It Relate To The Data Used

If the report says that it was last updated on the 11th January this means that it used the data from the 11th January and was probably posted at some stage well after the close.

This page will be updated weekly over the weekend based on Fridays Closing prices.

Reading The Report

The first part of the report is a quicklist of all the sectors that are outperforming the All Ordinaries. You will notice the page appears like:


Which column a sector goes in to is decided by a mathematical formula and NOT OUR OPINION. The following is a list of the criteria:

StarSectors

StarSectors are basically the strongest performing sectors. They are outperforming the XAO as measured by the relative strength comparative on both daily and weekly data and the majority of the tests in the StarSector table are green (see StarSector Table below). It is not a guarantee of future performance. It is simply a quick reference guide as to which stocks have been outperforming the index and seem to be rising.

Neutral

These stocks fall in to one of two categories:
1) They are not outperforming but the other tests in the table are green.
2) They are outperforming the market but seem to be moving downwards as other tests are orange or yellow.
This is all decided by mathemtical formulas and not from our analysis looking at the charts.

Black Holes - Now UNDERPERFORM

These sectors are underperforming the market on both a daily and weekly time frame. We used to call these black holes as putting your money in to downtrending sectors is like putting it in a black hole - hey where'd that money go !! There is a possibility this could have been viewed as advice and we have since changed this.


Reading the StarSector Tables

The StarSector Tables are considerably more useful than the initial list. The initial list is just a quick way for me to check whether a sector is performing well, the tables shows all the reasons why each sector is in it's respective list. It also tracks the other indices including the ASX50, 100 and 200. I pay most attention to the weekly table.

The following is how the tables appear:

The Categories and how they are colour coded are:

Sector / Indice

Obviously this is fairly self explanatory listing the name of the sector or indice.

Green = Outperforming Index and Most Tests are Green.

Yellow = Underperforming Market but Most Tests Green, Or Outperforming and most tests yellow.

Gold = Underperforming Index and two or more Tests are orange or yellow.


Code

Again self explanatory and lists the code for the index or sector. Colour coding is the same as the full name.

Green = Outperforming Index and Most Tests are Green.

Yellow = Not Outperforming Market but Most Tests Green, Or Outperforming and most tests yellow.

Gold = Underperforming Index and two or more Tests are orange or yellow.


JICD

This column refers to the sector and it's relationship to my personal indicator the JICD. The JICD is due for release to the public by March 2005 and is fantastic for measuring shorter term rallies and momentum. This particluar test measures whether the price is above a second indicator called the JICD Entry Exit Line. If the close is above then this will be green. If it is below it will be Orange.

Green = The Sector is above the JICD Entry Exit Line - Sector has been positive in the short term.

Gold = The Sector is below the JICD Entry Exit Line - Sector has been negative in the short term.


MA Harmony

This column refers to a test to see whether the 7,14,21 and 28 day moving averages are in harmony. We believe that this is a good test for the medium term direction of the index or sector.

Green = The Sector's moving averages are Rising in Harmony. This usually occurs after an uptrend has started

Yellow = The sectors moving averages are not in harmony at all. No direction measured.

Gold = The Sector's moving averages are Falling in Harmony. This usually occurs after a downtrend has started.


MMA

This column refers to a test of the Long Term group of Guppy Multiple Moving Averages. As any of our readers know, we believe the multiple moving averages are the premier indicator for understanding tredning situations. We try never to trade against the multiple moving averages. This is our slightly longer term indicator.

Green = The long Term Group is Spread and Rising.

Yellow = The Long Term Group is compressed.

Gold = The Long Term Group is Spread and Falling


JMRSC

This column simply refers to an indicator based on the RSC (for all intents and purposes it is the Relative Strength Comparative). This is testing to see whether an index or sector is outperforming the XAO. We cover in our newsletter how we use and what we really think of the RSC as an indicator.

Green = The Sector or index is outperforming the XAO according to the RSC.

Gold = The Sector or index is underperforming the XAO according to the RSC.


BS SC

This column measures the number of trading periods the Stock or index has been outperforming or underperforming the XAO (All Ordinaries). If the sector is outperforming then the number equals the number of days it has been doing this. The opposite is true for gold.

Green = The Sector or index is outperforming the XAO according to the RSC and has been for this many days.

Gold = The Sector or index is underperforming the XAO according to the RSC and has been for this many days.



This Weeks Notes

At the end of the report we may make comment of anything we note as interesting. We are not able to and will not give advice regarding the sectors, index or general market in this section.


Summary

Each square in the Star Sector Table is designed to track the previous movements of a stock or index over a certain time period. Position traders will find the weekly data most useful.

We use the JICD to look at the shorter term, the Moving Averages for the Medium Term and the Guppy Multiple Moving Averages (GMMMA) for longer term indications. When combined with the RSC, it can help to give us a picture of where the sector or index stands.

For a full understanding of what we have learnt and how we view the sectors, we would welcome your subscription to our newsletter.

Disclaimer and Copyright

The information published on this site is subject to copyright and may not be reproduced in any form without written permission from Jason Mitchell. The information published above is general in nature and has not taken in to account specific investment goals or financial situations. The information is for educational purposes only and should not be relied on in place of specific investment or professional advice. Jason Mitchell expressly disclaims all and any liability to any person, in whole or in part, in respect to any circumstances and or consequences by any person(s) actions, caused in whole or in part, whether directly or indirectly, by reliance on the above email, in whole or in part. The JICD remains the property of Jason Mitchell and this email does not constitute permission to reproduce, copy or discuss the indicator with anyone.