You know, asking the right questions is half the battle when it comes to trading. That's why it's so important to not be isolated as a trader. When traders act as sounding boards for each other, they start to ask new questions. And that can sometimes yield fresh answers.
Case in point: One hedge fund trader I work with, noting my earlier post on INTC and my recent post on money flows into the semiconductor stocks, pushed me to think through my findings. He even gave me permission to pass along our conversation.
"So what does it mean?" he prodded.
"Investors are going after growth; they're bullish on the economy," I offered.
"Yeah, yeah," he said, not quite uttering the words, "Tell me something I don't already know."
"I guess if the market for chips is hot, it might spell good things for all the electronics that use chips," I tried again.
That's all he said.
So, after we discussed our other business and finished our call, I decided to put electronic pencil to paper. Noting that Intel has been up over 14% in the past three weeks (15 trading sessions), I decided to examine what happens next in computer technology, using the Amex sector index $XCI as my measure.
Going back to 2004 (N = 817 trading days), we've had 142 occasions in which INTC has been up more than 5% over a 15-day period. Ten days later, the Computer Technology Index (XCI) averaged a gain of 1.07% (92 up, 50 down). By contrast, across all other occasions in the sample (N = 675), XCI has averaged a 10-day loss of -.09% (341 up, 334 down).
A strong Intel stock may say something about investors' attitudes toward technology in general. That strength appears to have persisted in the short run, making INTC a bellwether of sorts. I'll be watching this carefully over the next couple of weeks to see if, indeed, we can say, "Bingo!"