Let momentum inform strategy to ride the coat tails of “smart money”.

Money flow indicates staying power. That is, when money is flowing into a sector, related stocks will often experiences bounces after pull backs and develop sustained uptrends. And when money is flowing out of a sector, you might see pops get successfully shorted and bearish trends establish themselves.

How to use this study:

Day traders can use subsector momentum studies like this one to identify momentum stocks and develop greater conviction in a predicted move.

The magic sauce:

I use the Growth 250 list created by Investor's Business Daily (of which I am unaffiliated) to understand the depth and breadth of the market any given week. This is their best estimation of the top 250 growth stocks in the market. I keep a running study of this list, tracking money flows between subsectors.

Keeping an eye on this flow has proven to be a huge boon to my edge. I have found that when I trade in subsectors that are seeing changes in money flow that there is an increased level of continuation that correlates to the flow, whether positive or negative. And to put it simply, this translates into bigger moves with reduced chop.

This Week's Money Flow Report

TL;DR

More rotation into other areas of Specialty Chemicals as the entire Chemical Sector flattens out with another industry group breaking out. Even more flow into Oil & Gas and Utilities as commodities see continuation. Meanwhile Computer Software and Retail are looking like a sell.

Buy Side

• Chemicals-Agricultural
  • Cyclicals continue to lead as growth stocks sell on economic uncertainty. With the war in Ukraine continuing to wreak havoc on the Agri-chemical supply and the market seeking opportunity in essential commodities right, these names broke out last week. They look really extended and not actionable this week as more consolidation is needed. Still worth watching them action for more signals on how the market is reacting.
  • Favorite name in this industry group is: CF with NTR and MOS looking worthy too.
• Oil & Gas
  • More of the same here. It will be interesting to watch big cap leaders XOM CVX MRO this week — would love to see them build a handle now. In addition, with any more uncertainty in the strength economy, these stock are could just as easily sell or at best need more consolidation.
  • One I like here from a technical perspective is RRC — it has yet to really breakout. I also like the relative strength of APA MUR CRK. If I trade these names I may look to close out the position by day’s end to avoid any sensitivity to news catalysts versus trying to swing trade these oil & gas names where they are now.
• Utilities
  • As stated last week, these are extended. Still, the inflow continues in these names. Similar to oil & gas, I’d like to see them pull in here and make a handle. Utilities seem to have a head start on this as they were very extended going into last week and closed around the place I’d like to see as support for the handle.
  • AES has yet to break out of its base. NEE looks strong testing handle support to close Friday as well. AMPS is a very aggressive mover to watch — if it breaks out of the handle, could really run.

Sell Side

• Computer Software
  • With growth companies getting slapped by the Fed last week this is no surprise. Many have insane valuations with some worthy set up for short selling. These are strictly growth companies with high P/E ratios + book values that are going to suffer under tighter monetary policy.
  • Some worth watching include: FTNT DDOG NET SPLK $U OKTA
• Retail
  • With most of the big retailers reporting last week, we were able to build more of a picture of how consumers are behaving in today’s economy. Even the most defensive retailers struggled on their reports for many reasons we talked about in an earlier report. There are specific areas of retail to target based on last week’s reports and some additional technical analysis:

1. Wholesale Building Products — FAST FND LOW 2. Discount & Variety — OLLI BIG FIVE 3. Leisure Products — DKS BFV ASO 4. Restaurants — SBUX YUM

Review: Last Week

TL;DR

Last week added up to a very satisfying week to be long commodities, taking profit in solar/alternative energy and going short semiconductors.

Fossil Fuels

Last week’s buy side focused on coal names to respond to gains from alternative energy as of late. BTU made for a nice trade up nearly 12% for the week but was drug down by Chairman Powell’s comments to a final gain of 6.64% to close the week. Same story with the oil and gas names we identified, although they were also drug down into close Friday with everything else.

Retail

Value retail names did not pan out as hoped DLTR earnings report was highly disappointing. That said, we did not trade any of these but did notice that KR had more relative strength versus COST — which confirms an earlier concern that COST is probably a bit overpriced here by fair-value comparison.

Utilities

Utilities took a pause here as well. The SPDR Select – Utilities (XLU) did show some relative strength though, down only -1.53% and perhaps building a handle for more upside on a tough week for stocks.

Semiconductors

Last week’s sell side took focus on semiconductors with Nvidia’s lowered guidance going into earnings and most of those names looking very extended, that rotation was self-evident last week. Still the market’s response to Chairman Powell’s comments, from this mostly growth-focused area of the market, was SELL. The VanEck Semiconductor ETF (SMH) finished the week -5.56% making for some powerful down moves.

Alternative and Solar Energy

We also looked to rotate out of alternative energy and solar positions as they take a pause. Enphase Energy (ENPH) still looks like it could hold this breakout range down only -3.74% on the week but will need some time to consolidate and produce enough earnings/sales momentum to decompresses the valuation before another leg up is rational.

Closing

Momentum studies like these can help make trading simpler. I'm always on Reddit and within the market so if you have questions, know that you have my attention. Drop your thoughts and questions in the comments so we can connect.

As always, if I can't answer your question (which I won't pretend to know everything), I'll do some research and share my findings. Long live /r/stocks!