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Hot sector – How to play sector rotation and make alpha (outperform)

Wed 9 Jan 2019

The FTSE Bursa Malaysia KLCI index hit a low of 1626 on 18 Dec 2018 and over the last 3 weeks has since rebounded to a close of 1672 yesterday. The current rally over the period actually hit a high of 1701 on 31 Dec, which was likely due to window dressing activities.

While it is important to know where the broad market indicator is going (but this is another story), elite traders and investors should always stay with the strongest sectors in the market as the stocks in strong sectors are likely to lead in any rally.

Three sectors have clearly led the rebound in the broad market recently and have continued to stay strong. If you are not in these three sectors, you may have missed the rebound rally early. The movement of stocks in these sectors have been detected by our master algorithm earlier and elite traders could easily move into opportunities in the stocks in these sectors.


While the key to outperformance in the current weak market is likely to be the correct stock pick rather than broad sector pick, we always want to stay in strong sectors to provide added strength and safety to our individual stock picks.

Your stock portfolio could be re-balanced in line with the shift in sector strength by selling stocks in sectors that have just turned weak or are persistently weak and rotating them into sectors that have just turned strong or are still persistently strong.


For example, one would have detected the selling of stocks in the rubber glove and semiconductor sectors recently and would have taken profit and re-balanced his portfolio out from these sectors into the three sectors mentioned above that have outperformed.

Hence, whether the broad market indicator is bullish or bearish or sideways, there are plenty of opportunities in the market by allocating one’s stock portfolio strategy based on sector rotation.


What our master algorithm does first-hand is to perform specialised mathematical and statistical algorithm and large-scale data analytics of price, volume and volatility movements in the whole market and individual stocks in a short span of time that would take months and years for a human analyst to do the same amount of analysis.

The ability of the algorithm to perform various analysis in terms of looking for correlation, diversification, measuring risk and reward, volatility, etc. is also beyond the capability of a human analyst in the same amount of time.
One of the indicators we use to determine a strategy for sector rotation is to use our proprietary buying and selling pressure indicator and determine which sectors are getting the boost from traders and investors in the market, which also likely indicate the flow of funds into these sectors.

The buying and selling pressure measure each individual stock in the sector and amalgamate the result to produce a broad universe indicator for the sector itself.


By tracking the buying and selling pressure indicator, we determine which sector are experiencing inflow and outflow of funds at the earliest and use this to our advantage in formulating a stock portfolio strategy to rotate in and out of these sectors.

Traders and institutional funds are likely to find such a strategy very useful in seeking outperformance or alpha in the market.


We highlight the movement of two particular sectors in the market below but more importantly, which sectors are going to turn strong or weak next?

Follow us at mPower Algorithm and mPower Trading and see how each individual sector is performing in the market and which sectors you should really be in and out of (early).


Sector daily buying and selling pressure


Note: Certain info presented in the tables above has been redacted to comply with the agreement with elite members of the mPower Algorithm program and mPower Trading program and certain institutional clients. The above analysis reflects our personal view only and is subject to terms of use. Please refer to the full report inside for the complete info.