The DT Group Rotation application feature allows the user to view the Sectors or Groups by the exchange to which they are subscribed. The benefit is to see early rotation either into or out of certain Sectors/Groups for stocks.
In the DT Group Rotation application, we display the Phase Analysis as we do with all Trade Balances for quick and easy viewing. We also give the option of displaying the Recovery Factor (RF) as shown below.
The following is an example of the Group Rotation application identifying a very weak market just before the end of a trading day in the overall United States Sectors.
On the following day, the same markets began to rally early in the day, and the DT Group Rotation continues to see Red color (weakness) leaving the smaller, more sensitive rooms. By the end of that day, a major market reversal and strong rally resulted. Early on, Group Rotation identified the potential change in bias or direction; as the day continued to evolve, growing strength became more evident as the Blue color (new buying strength) would flow further into additional, bigger rooms. In just twenty-four hours, the market went from a very negative picture of weakness to one of rapidly growing strength. If mutual and hedge fund traders had knowledge of this, they could have tightened stops on shorts to protect those positions or began looking for new Buys in the stronger new Groups.
We can use the DT Group Rotation application to identify early Group Rotation within the larger Sectors, or we can monitor Group Rotation in the specific groupings.
Group Rotation is not unique to just the stock market. Rotation can also occur in different forms for the Forex or Futures markets.
To access the Forex module within DT Group Rotation, click on the down arrow icon to bring up Group selection. Highlight and click on DT Forex to load individual Forex pairs that the Trade Balances currently support.
You should now see the DT Forex Group Rotation page. This page contains currency pairs' Trade Balances.
To see the remaining DT Forex Trade Balances, click on the tab located in the upper left corner area (see arrow below). If more Forex pairs are added in the future, the empty spaces will be automatically populated.
Now focus on the original page. The first thing we look for are those currency pairs with the strongest and most unified colored rooms. This would suggest efficient up or down trends currently in progress. For example, in the following illustration, when this Group Rotation screen was captured earlier this week (the various Australian Dollar pairs and something like the Euro/Swiss pair), represent stronger currency pair trends in progress based on their mostly Bullish room colors. A couple pairs stand out as in efficient weak trends based on their mostly Red room colors.
For illustration's sake, let us assume that we want to focus on the Euro/Swiss pair to see if we can find seek out any more insights into its recent trading behavior or if we can scan for and focus on its future trade setups.
Take your mouse pointer and highlight the middle section in the Euro/Swiss Trade Balance area. Now double click.
When you highlight the middle section in the Euro/Swiss Trade Balance area and then double click, that currency pair's daily Trade Balance history appears for the past month.
If watching the Group Rotation room on a daily basis, you may be able to identify a clear change in buying or selling behavior earlier. As this behavior continues, we begin to see early evidence of a potentially bigger change-in-trend or even more temporary change-in-bias trends setting up for that currency pair. This rotation in or out of a currency pair might be due to the actions of central banks or large currency groups. We can use this insight to attempt to lock in profits or look for new trend opportunities.
Typically, we monitor Group Rotation by keying in on the first two to three rooms: the DA, DB and DC rooms. If the rotation remains consistent, you will see new color flow into the next higher room. The longer this new energy flows, the more rooms will change in color.
If you want to see what a Trade Balance looked like very six hours, select 6hr in the DT Group Rotation tab area.
If you want to see what a Trade Balance looked like very three hours, select 3hr in the DT Group Rotation tab area.
If you want to see what a Trade Balance looked like very one hour, select 1hr in the DT Group Rotation tab area. This is the most sensitive area and will identify Group Rotation the quickest. If you want to see money flowing in or out of a particular currency pair, this is the area where that rotation should show up the quickest. By focusing in on the smallest rooms (DA, DB, DC, DD) changes in color from blue to red, or red to blue will first show up in the smallest rooms. The longer rotation occurs, the more this flowing of new color will happen into the next higher room. This is how we pick up rotation most quickly. We use this rotation information to help us tighten stops on existing positions, or to help us focus on a new trade direction that may be coming.
Here is something I put together a while back that helps explain how sector and group rotation happens and, as traders, why we monitor for it.
A market Sector is an accumulation of industrial groups with similar macro business characteristics. Groups are orderly collections of similar businesses. Such an example of is the technology Sector (referenced below). Within the technology Sector, there are several groupings: computer equipment, computer hardware, computer peripherals, computer services and computer storage devices. The technology Sector includes other group areas where new technology is involved such as office equipment, electronic instruments and controls, communication equipment, and scientific and technology instrumentation.
Group Rotation is an observable phenomenon where money can be traced flowing from one stock Group into another Group or market area.
Money will chase other money and newly perceived opportunity in markets. Because there is only so much money to go around, money managers or traders need to make wise decisions and allocate money where it will be the most beneficial. Mutual and hedge funds often hold large cash reserves that need put to work or maintain large positions that constantly need updated risk/reward parameters. These large cash reserves need kept in circulation as much as possible to produce the greatest consistent growth potential.
In addition, stocks in an industrial group have always had a tendency to perform above or below other industries. Some Groups work in accordance with different business or economic cycles or conditions change differently in that industry. Group Rotation can give evidence of the expected performance of the market being sold and the market being purchased.
Group Rotation has gained more importance since today's trading environment now occurs at a quicker and more frequent pace. With amazing world-wide communication networks built in the past twenty years, traders and investors are instantly informed about key changing market or economic conditions. They do not hesitate to react quickly to new information-whether domestic or international. Institutional and fund money managers and traders react immediately to better opportunities or worsening conditions for all or part of their portfolios.
Group Rotation does occur and is more apparent than ever before. Mutual and hedge fund managers seek out market conditions that signal that a potential rotation is setting up such as unexpected earnings results, instance changes in outlook, a need to grow defensive when too much uncertainty creeps in portfolio management or periodic rebalancing of portfolios. Whatever the reason, Institutional and professional traders do not hesitate to shift assets quickly and change emphasis from one area to another group with better prospects. The overall market will monitor market leadership for evidence of what is not a performer for that day, week or month. Mutual and hedge fund managers begin to shift into tactically defined and re-evaluated overweight or underweight strategies as conditions further develop or change, and they began to reallocate their assets. With today's computer technology, what could be masked with complex buy and sell strategies can now quickly become picked up by the overall marketplace, and they jump on board the new Groups as well. It does not take much time for others detect these changes as well.
By recognizing Group Rotation in the early stages, traders can greatly benefit. Existing positions can be managed better. New opportunities can be recognized, and previously missed trade setups can be identified as valid and can be considered. Before the majority of mutual and hedge fund mangers jump on board, you can be the first to shift into new investment priorities or ideas.
A simple example of Group Rotation occurred in 2005 (referenced below). In the summer of 2005, energy prices continued to push higher and were further complicated by natural disasters such as hurricanes. For example, increased energy prices added pressure to the airline industry because fuel is a large expense for airline companies. If you were plotting price movements, starting July 20, 2005, money collectively started to flow out of airlines. Selling pressure continued in the airline group until September 29 until consistent buying began to come back into the airline group.
Energy stocks collectively began rising in May but paused in June and at the beginning of July. However, on July 20 (the very day that selling began to enter the airline groups), buying came into the oil and gas integrated Group. On September 29 (the day airline stocks started to rebound after a few months of weakness), those very same energy related stocks began to sell off collectively.
While this Group Rotation relationship (where one Group gets bought while another gets sold) is not always one hundred percent equal, clear patterns can often be identified, observed and measured. Acknowledging rotation in the early phase becomes very valuable to traders. Profits can be protected for efficiently, and attempts to trade into these new trends can be pursued sooner.