What is GroupPower?
GroupPower is John Bollinger's market sector and industry group analysis product.
What is the underlying philosophy behind GroupPower?
Many studies have been conducted that decomposed the attributes of the return of stocks. These studies suggest that industry-group and market-sector factors are very important components of return. GroupPower was created to exploit that information.
What are industry groups?
Groups are agglomerations of companies in a similar line of business.
What are market sectors?
Market sectors are groups of industry groups with similar macro business characteristics.
What is the Market?
The Market is an equal-weighted index of all the components of the Group Power structure.
What does equal-weighted mean?
Equal weighted means that each component receives the same weight in analysis or index construction. This means that large stocks don't dominate the universe as they do in a capitalization-weighted index such as the S&P 500, or that high priced stocks don't dominate as they do in a price-weighted measure such as the Dow Jones Industrial Average.
All EquityTrader and GroupPower calculations are equal weighted.
What are rational industry groups?
Rational groups are industry groups whose components have both a good fit in terms of business line and a good fit it terms of trading pattern. GroupPower uses rational industry groups and market sectors.
How many stocks, groups and sectors are in the GroupPower structure?
The structure is frequently revised to reflect changes in the market place. As of September 2010 there were 15 market sectors, 203 industry groups, and over 4,400 stocks in GroupPower.
How often is the GroupPower structure updated?
Routine maintenance occurs as needed.
The structure is overhauled once a year.
What are the non-correlated groups?
They hold the stocks that would normally be in the groups in that sector, but whose trading pattern does not correlate to the group to which they fit fundamentally. Sometimes called holding bins, there is one of these special groups per sector.
What is the GroupPower update methodology?
First, stocks with poor fits to their groups are moved to the holding bins in the sectors to which the groups belong. Next, stocks in the holding bins with good fits to appropriate groups are moved to those groups. Then the complete structure is recalculated and the entire process is repeated until the structure stabilizes.
What stocks are included in GroupPower?
Most liquid issues traded in the United States, plus other stocks of interest.
In each revision, we eliminate stocks that have become illiquid from the structure, as they are a source of noise, not signal.
How is the GroupPower structure organized?
The initial structure was created in a traditional top-down manner focusing on the dynamics of the modern economy.
The structure was then tested for mathematical fit and reorganized to assure the tightest possible fit.
Why are some stocks in holding bins rather than in the groups to which they "obviously" belong?
When a stock has a poor mathematical fit to its 'proper' group it introduces noise into the structure. Since the goal of the structure is to provide high quality trading tools we wish to minimize the noise.
What is the GroupPower Arms Index?
The Arms Index portrays the balance between advancing groups and declining groups as a function of volume.
The formula is (number of advancing groups - number of declining groups) / (volume in advancing groups - volume in declining groups)
1.0 is neutral, everything is in balance.
Numbers above 1 reflect a downside bias and numbers below one reflect an upside bias.
Due to the ratios employed, the index is distributed in a semi-log manner. For example 2.0, not 1.5, is the opposite of 0.5.
What is GroupPower Open 10-day Arms Index?
It is an Arms Index computed using 10-day simple moving averages of the components.
It is useful for identifying extremes in the market.
What is the High-Low Index?
The HLI is the 10-day average of 52-week highs / (52-week highs + 52-week lows)
Swings upward from low levels are thought to be bullish and swings down from high levels are thought to be bearish.
What is the High Low Logic Index?
The HLLI is the smoothed minimum of new highs or lows divided by issues traded.
It typically rises near the end of sustained trends indicating increasing risk.
What are Early Warnings?
Early Warnings are groups making either 13- or 26-week new highs or lows, but not yet 52-week new highs or lows.
Early warnings are often good indications of groups that are in the early stages strengthening or weakening.
What do the "Action" tables portray?
They portray the largest changes in the GroupPower short-, intermediate- and long-term momentum rankings.
These tables depict where the money is flowing on any given day.
What is the Money Flow used in Group Power?
It is a volume indicator called Bostian's Intraday Intensity.
What is Persistency of Money Flow?
PSMF, $$ on the reports, is the percentage of days in the past six months on which Money Flow was positive.
What are the momentum numbers used in GroupPower?
Short-term momentum is a one-month momentum calculation.
Intermediate-term momentum is a one-quarter momentum calculation.
Long-term momentum is a six-month momentum calculation.
All the momentum calculations are front-weighted.
What do -5, -10 and -20 mean on the Momentum report?
They refer to 5, 10 and 20 days ago. The first number in the row is the most recent momentum number, the next number is the one-day change in momentum, next is momentum from 5 days ago...
How do I compare the momentum data?
Groups that have sequentially increasing momentum numbers are strengthening and vice versa.
Groups with extremely high or very low momentum numbers are often at unsustainable peaks or troughs.
Are the short, intermediate and long-term momentum numbers directly comparable?
Yes, all the momentum numbers are stated in the same units.
What do the flags on the reports mean?
> Means Money Flow has risen in each of the past four weeks.
< Means Money Flow has fallen in each of the past four weeks.
1 Means a 13-week high
2 Means a 26-week high
$ Means a 52-week high
-1 Means a 13-week low
-2 Means a 26-week low
# Means a 52-week low
What is the "Gear" report?
A list of groups with very strong correlations to the market. These are the groups are in sync with the market.
A list of groups with poor or negative correlations to market. These groups should be traded on their own, without reference to market trends.
What are parents?
A stock's parent is the group to which it belongs.
A group's parent is the sector to which it belongs.
A sector's parent is the market.
What are siblings?
A stock's siblings are the other stocks in its group.
A group's siblings are the other groups in its sector.
A sector's siblings are the other sectors in the market.
What are children?
A group's children are its member stocks.
A sector's children are its member groups.
A market's children are its members sectors.
How do you use GroupPower?
The aspect of GroupPower I am most interested in is sustained increases in momentum that occur from low levels and sustained decreases in momentum that occur from high levels.
To help identify candidates the short-term momentum list is broken into quartiles. Groups with steadily increasing momentum in the second and third quartiles are of particular interest.