If you answered technology, congrats. If you answered commodities or precious metals, you need to ask yourself why.
The Dow Jones closed at a -2% loss in 2015, issues such as Greece, China slowdown, and a soft bond market has created volatility and chaos. Long term portfolios were down, and we’ve just finished a seven year bull cycle. Those who started investing mid year saw some losses.
Technology was a leading sector and was up for 2015, and those fortunate to have traded those markets are probably ecstatic.
The real question comes up to as to how one could have know tech will do well. Here’s a meat of this conversation. You should focus on the leading index, or indexes that are breaking out from all time lows.
An easy way to track where the action is analyzing the charts of various sectors. This should be the foundation of your chart analysis. Keeping up with the top three of course, namely the Dow, Nasdaq, and S&P. Adding more to your sector analysis should be ETF’s that track other sectors like, gold, emerging markets, China etc.
During short term market corrections, one should note what sectors are holding steady or trading green, then go further to analyze which stocks are responsible for the upside.
At this point, you’ve probably noticed a significant number of stocks. This is not the end of your analysis. One should go further and embrace fundamentals. Pick out he healthiest companies, with a reasonable market cap, that is trading with at least an average volume of 1 million shares.
It’s too often seen that traders pick a market or stock to trade for all the wrong reasons. Personal opinion seems to be a ruling fallacy when choosing what stock to trade. One might trade gold because an article talks about an impending bull market in gold. Another might trade a stock because a friend has a hunch.
Very few traders let the market tell them what to trade. If you take the time to remove your personal bias, and observe market sectors objectively, the markets will give you the answer you need.
Take a browse around this website, learn the process. There are a few good resources for the beginner and professional alike. Learn about bull and bear cycles. How to spot market tops and bottoms using technical analysis. Learn about important price points defined by volume.
When analyzing the markets, develop a process, or adopt one. Figuring out the next hot stock is a function of your process. If you’re taking a guess, you are gambling.