Understanding the rotation part 2

In the last post I went through some of the rotation that I expected by identifying mega cap names and then evaluating the group. Some groups are better than others but I will continue with the following groups just to show you how I go through the process:

education training services group
business services group
biotechnology group
aerospace defense major diversified group
synthetics group
------------------------------------------------------------------------------
(keep in mind this post was written 1/6 and only submitted later after some editing)
education training services group
There are no companies over $10B which make the liquidity cycle analysis difficult and different. However, between $1B and $4B there are still enough quality setups for me to expect the rotation to unfold there first, and then as that occurs those under $1B will begin to have more and higher quality setups. So there is still some market cap analysis that can be done. There are a lot of names consolidating just under the highs. Then there are those with a lower high that have yet to really establish a higher low and then lower quality setups. There are no real short squeezes happening just yet and the high short interest names are mostly lower quality setups which confirm that we are in the "laggard" phase.
I'm not in love with any setup here just yet at least from a timing perspective but I will keep my eye out as I think this space has long term promise and it is starting to rotate into favor and there are a lot of names developing some kind of pattern during this consolidation phase but which still need more time.

business services group
In terms of the liquidity cycle, I don't really like anything under $4B at this time. That isn't to say that there aren't plenty of potential individual plays, but there are a lot of toppy looking patterns and break downs and those making lower highs or near their 52wk lows. There are some individual ones that defy the trend, but those are the exceptions and eventually the leaders when there is an appetite for the group. This is too early on in the rotation for me to really like at all personally, so I would stay away and look for something better, but if I had to, I would be "okay" with ATHN and maybe PCLN although it probably needs some sideways work, it has a tendency to rally off the dip and run.

biotechnology group
This group is difficult to analyze because of the dependency of FDA to move the stock creating a much more diverse group that is driven by their product pipeline, rather than the industry theme. Even so, I think as a whole the group is setting up well and has been a hugely bullish theme the last few years as you can use the BBH to see the strong trend. Fundamentally, I love the space as a whole because the innovation that is happening with RNA,DNA, stemcells, genetics, and various cures and even potential 3-d printing of biomaterial, etc I believe is a gamechanger that may take 5-10 years to develop but is still a major tailwind in the price. When sorting by market cap I see hardly any correlation between setups and market caps. There is a very diverse group at every level. This can be an extrodinary opportunity for those that really learn the space inside and out and learn to trade it as the market direction makes almost no difference, the space itself almost makes not difference, and as a result if you can learn to get a lot more upside than downside, you can make lots of individual trades in this space without worry of getting too exposed to market risk. Simply manage individual position risk and you should do fine. In other words, being able to have 20 individual bets that may overlap any given time period means much less risk of a sudden market, sector, or industry drop or tightening of overall economic liquidity. and thus you could have 20 2% positions and it would in some ways be much less risk than having say 10 4% positions in say the metal miners space all at once. Although individually the stocks move a lot more and are vulnerable to wider sings and more volatility and thus you may want to reduce your position size PER position, the overall exposure to the space need not to be as limited. The difference is similar to a choice between betting 40% of your money on a 3 to 1 payout with 1 coinflip, or having 40 1% positions on individual separate coinflips.

So in terms of "risk cycle", I don't know if it applies either. Basically none of most of the analysis I do is relevant other than price action and past price/volume history and sentiment, but even that is not as effective because one major FDA approval failure/success could completely change the picture. You can try to game whether or not the market is overly optomistic about pending results and try to handicap it the way a professional gambler might handicap horseracing or sports teams, but I don't think the edge will really be all that significant compared to what I might do with other trades. Price action BETWEEN events might allow for some trading but I think you really have to work with fundamentals, burn rates, product releases, the number of products in pipeline, research/devlopment, etc to really have an edge and that requires you to really invest in the longer term. And if you do that, some are still going to go to zero so you have to have much smaller position sizes and treat being long the stock like being long an option in that you have to expect the downside to be zero, and let the upside run to hundreds of percentage points or more.

This is enough to go on but I feel like I have more of an edge with other picks, even though I love this space and being good at picking biotech is much more benneficial to one's portfolio because of the near zero correlation with anything else you will have in a portfolio and most correlation just being coincidental or related to overall confidence. I could go through some picks here but they are only based upon typical risk/reward analysis where I look at upside and downside target, but that does nothing to really increase the probability of being right on both a bullish move occurring and increasing the precision on the timing which is why I go through this process. I will cover that in another post some time.

aerospace defense major diversified group
There aren't enough names in the group to really analyze but overall the space has been in strong bullish trend. I am less confident in any pick from this space because of lack of ability to thoroughly analyze. So again, I haven't done a lot to increase the probability of being right over the typical trader, other than identifying a lot of capital moving in lead by the largest caps in a strong trend and the individual setup, with limited names though, it is good that they all look mostly somewhat bullish.
If I had to pick:TXT

synthetics group
Same thing, not enough in the group but overall space is decent. However, I will say that the 3 largest caps look short term bullish as they have turned up from a low and consolidated below highs. Not ideal but decent. I might play AXLL or TROX if I had to.... but I don't.