Stock Selection & Sector Rotation
Criteria and workflows for selecting stocks and identifying strong sectors for weekly trading.
Stock Selection Criteria
Core Requirements
Liquidity
- Average weekly volume > 500,000 shares
- Market cap > $2 billion
- Ensures smooth execution and minimal slippage
Trend & Momentum
- Price above 50-week Simple Moving Average (SMA)
- Weekly RSI (14) > 50
- Higher highs and higher lows on weekly charts
Sector Strength (Optional)
- Filter for sectors showing recent strength
- Use sector ETFs to identify leading areas
Earnings Filter
- Avoid stocks with earnings reports in upcoming week
- Reduces unpredictable gap risk
Example Entry/Exit Rules
Buy Signal:
- Stock closes above 50-week SMA, AND
- Weekly RSI crosses above 50 (bullish momentum)
Sell Signal:
- Stock closes below 50-week SMA, OR
- Weekly RSI crosses below 50 (weakening momentum)
Workflow
- Weekend: Scan watchlist for stocks meeting entry criteria
- Monday: Enter trades at market open if signals confirmed
- Weekly: Monitor positions, apply exit rules as needed
Sector Rotation Analysis
Why Sector Strength Matters
- Stocks tend to follow their sector's trend
- Strong sectors attract institutional money
- Helps avoid weak/sideways sectors that drag performance
Identifying Strong Sectors
1. Track Sector ETFs
| Sector | ETF |
|---|---|
| Technology | XLK |
| Healthcare | XLV |
| Financials | XLF |
| Energy | XLE |
| Consumer Discretionary | XLY |
| Industrials | XLI |
2. Rank by Performance
- Calculate percentage change over last 4-8 weeks
- Use relative strength indicators (RSI, ROC)
- Look for sectors above their 50-week SMA
3. Focus on Top Performers
- Screen stocks within top 2-3 ranked sectors
- These likely contain stocks with strong momentum
Sector Analysis Workflow
- Check weekly charts of sector ETFs
- Identify sectors with:
- Price above 50-week SMA
- RSI > 50
- Recent weekly gains
- Screen stocks only within those sectors
Related Documentation
- Overview - Weekly trading concepts and strategy types
- Tools & Screeners - Screener setup and analysis tools
- Data Sources - APIs for price data and fundamentals
- Strategy Template - Template for documenting strategies