In time, the relative-strength method has been improved by focusing on sectors and industry groups. Although an individual stock can be knocked down by a one-off event, sector trends are less likely to turn on a dime and typically take a longer time to play out. Momentum in a top-performing sector will often taper off — resulting in another sector assuming the top spot — before it enters a prolonged decline.

This fundamental concept can be exported around the globe through trading single country exchange-traded funds (ETFs), which track the performance of different international stock indices. In 1996 the iShares family of ETFs launched several ETFs to track the major stock market averages of a number of various countries around the globe. This universe has expanded over the years to include dozens of international stock-index ETFs. Not surprisingly, there is a high degree of correlation among them. If there is a global stock bull market, most country ETFs will rise in value, while most will decline in the face of a global bear market. Nevertheless, for trading purposes, we can treat each of these instruments as distinct sectors.