Get in the Group Loop!

Sorry I've been away for so long. I've begun working with John Bollinger, and he's been keeping me pretty busy. Let's get right to it. I'll be writing a couple of articles every week, and each article will analyze one or two specific groups of stocks that seem poised to make significant moves.

The data come from the Group Power service at John Bollinger's educational Web site, www.BollingerBands.com. Group Power analyzes 3,650 stocks and categorizes them into 168 groups within 14 distinct sectors. The methodology is called "rational analysis," and it includes both fundamental and technical components.

In a nutshell, rational analysis considers the company and the price action of its stock. Inclusion in an "RA" group requires both common business industries and a strong trading correlation among the stocks in the group. For example, rather than tracking just one software sector, Group Power breaks down the sector into 10 different groups.

Though I will occasionally mention groups or stocks that are overbought and may contain good short-sale candidates, I will cater to the long bias of most readers. Also, I will post charts of the groups themselves, and only occasionally show a stock chart. Since you're trading your own money, you need to do your own homework. I'll point you in the right direction, but you've got to do your own charting and research.

Now, on to the market. Today we'll look at the publishing group, which is one of eight groups in the media sector.

Sector: Media

The media sector is rolling over. Advertising revenue continues to decline as advertisers begin to realize that the glitziest ad cannot loosen the purse strings of an uncertain consumer. The chart below shows the trough in mid-December bouncing off the middle Bollinger band, while the current low is at the lower band. This is a new relative low, and a bearish indication. (See my earlier article on relative highs and lows for more explanation of this concept.)

Source: www.BollingerBands.com

Group: Publishing

The publishing group refuses to roll over. It has just hit its 26-week high on almost twice its normal volume. The group is just slightly below its 52-week high with relative strength to the S&P at a 52-week high. This makes logical sense, because books (and magazines such as Reader's Digest) are relatively cheap entertainment, and institutional money devoted to the media sector has to go somewhere. One place where money goes is into publishing stocks. Because momentum traders are attracted to stocks making 52-week highs, the publishing group seems ripe for continued strength if the mo-mo players find these stocks. Note that many of these companies are due to announce earnings at the end of this month.

Source: www.BollingerBands.com

That wraps it up for now. I welcome your questions and comments.

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Dan Fitzpatrick is an active trader in stocks and options, and works with John Bollinger on product development for PatternPower, a pattern-recognition and price-forecasting engine designed for institutional traders. His column focuses on quantitative strategies for investing and trading. Unless otherwise stated, Dan holds no positions in any stocks mentioned, though positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Dan cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to [e-mail].