Unearth the Market's Layers of Growth

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Physician's Money Digest, March31 2003, Volume 10, Issue 6

After every bear market, thereare certain sectors responsiblefor leading us into a new bullmarket. For example, back in 1990,HMOs, casinos, and computer peripheralswere 3 of the sectors responsiblefor leading the market into bullterritory. Knowing how to determinethese sectors is important if you planon getting the most out of a generousmarket when it is revitalized.

UNCOVER MARKET'S LAYERS

Surprisingly, the process is similarto peeling back the skin of anonion. Physician-investors need tofirst evaluate if the general market isshaping up constructively (ie, therally is experiencing up days onhigher volume than the previousdays). Once the market has beendetermined to be in good shape,then it's time to look for the sectorsthat are having the greatest influenceon the market's momentum.

Fortunately, today there are anumber of Web sites that can assistyou in this search, which includewww.investors.com, www.morningstar.com, www.valueline.com, andwww.dailygraphs.com. After theleading sectors in the market havebeen determined, the physician-investorneeds to find the specificindustry groups with the greateststrength. Within these industrygroups, they'll find the leading stockswith the highest appreciation—theCiscos of the next bull market.

FOLLOW THE LEADERS

This "peeling back the onion"market strategy has 1 objective—finding where institutions are puttingtheir investment capital. Forthe most part, institutional demandis what moves the market. They'rethe market superstars because theyhave billions of dollars to invest andhave to gradually enter and exittheir positions in individual stocks.

Of course, you'll want to investwhen the institutional demand for thestock is increasing. In short, you wantto remain in the wake of the institutions.There are 4 factors you shouldlook for to ensure you're keeping up:

• Price-volume action. Lookfor days when stocks increase onhigher volume days than days whenstocks retract. On breakouts or movesabove critical resistant points (eg,moving averages), look for at least150% of the average trading volume,with very light pullbacks.

• Number of funds invested.Look for quarterly increases in theamount of funds invested in a stock.

• Shares owned by funds.Look for quarterly increases in theamount of shares owned by funds.

• Performance grades of investedfunds. Look for the mutualfund ratings of those funds that areinvesting in the stock and if high-qualityfunds are purchasing it.

At some point in the future,you'll find yourself in the midst of abull market. When you do findyourself in this fortunate situation,roll up your sleeves and start peelingback the onion.

Michael Doran is a privatemoney manager affiliated withSierra Capital Planning innorthern California. He runs afee-based business and a hedgefund for qualified investors.For more information, call 877-467-8657 orvisit www.sierrainvestor.com. ChristopherNezbeth contributed to this article.