The Value of the Sub-Sector Perspective in Stock Picking

Includes: OIL, USO
by: Brett Steenbarger

The excellent Barchart site divides the stock market into 232 sub-sectors and tracks their performance relative to the broad market. The charts below (click to enlarge)represent the relative strength of the sub-sectors, not price. A zero value means that the sub-sector matches the strength of the broad market. Negative readings signify underperformance; positive readings indicate relative strength.

From these sub-sector perspectives, we can gain unique stock picking insights. Note, for instance, how the independent oil and gas companies are significantly outperforming the majors. Similarly, regional banks in the Northeastern part of the U.S. (which has been less hit by the housing crisis) are significantly outperforming regional banks in the Pacific region (which have been affected by housing weakness in California).

Themes dominate markets, not only at the sector level, but also among sub-sectors. This has important implications for traders and investors alike.