Friday, April 18, 2008

Using a Basket of Stocks to Track the Stock Market

A few traders have emailed me, asking me to republish the names of the 40 stocks in my basket that I follow for technical strength. The 40 issues are evenly divided among eight S&P 500 sectors: Materials (XLB), Industrials (XLI), Consumer Discretionary (XLY), Consumer Staples (XLP), Energy (XLE), Health Care (XLV), Financials (XLF), and Technology (XLK). I chose the five stocks from each of the eight sectors, because they were among the most highly weighted issues within the sector ETFs.

I have found this basket of stocks to be invaluable. They tell me when sectors are moving in unison vs. traveling their own way--an issue relevant to the type of market we're in. The basket also helps me identify market themes: which sectors are leading and lagging. On an intraday basis, I use the 40 stocks to identify which stocks are making new short-term highs and lows as the broad market is making fresh price highs or lows. This is quite helpful in handicapping the odds of the move continuing vs. reversing.

Here are the stock symbols for the basket, arranged by sector:

Materials - DD, DOW, AA, IP, WY
Industrials - GE, UPS, BA, UTX, MMM
Consumer Discretionary - CMCSK, TWX, HD, DIS, MCD
Consumer Staples - PG, MO, WMT, KO, WAG
Energy - XOM, CVX, COP, SLB, OXY
Health Care - PFE, JNJ, MRK, LLY, AMGN
Financials - C, AIG, BAC, WFC, JPM
Technology - MSFT, INTC, IBM, CSCO, VZ

In terms of technical strength, to wrap up the week, we find that 30 stocks in the basket are now trading in uptrends, 5 are neutral, and 5 are in downtrends. The rally has been broadening out to more stocks and sectors, which has been a very useful tell for trend followers. Not all trends are your friend, but the ones that gain strength as they progress are worth riding! The basket of stocks helps identify when trends are gaining and losing strength.


upsidetrader said...

Do you ever sleep? amazing-great work


heywally said...

Looks like a good sample for tracking. On the tech side, I'd probably add Apple (and possibly GOOG) as it has a heavy weighting in the Nazz 100. TY.

Wallsmw said...

You are missing one or two ETFs
XLU (Utilities)
TTH (Telecom)

Brett Steenbarger, Ph.D. said...

Hi Wallmw,

Yes, there are many sectors not included; I just track the major ones from the S&P 500 index. Utilities have enough of an interest rate component that I treat them separately--


Dave said...

I've found this to be a useful list, thank you.
But I was wondering if you updated it in light of the recent events?

Any suggestions for replacements (and updates as an ongoing work in progress) would be appreciated, thank you.


Brett Steenbarger, Ph.D. said...

Hi Dave,

Yes, great point. I need to take a fresh look and focus on the 5 largest cap stocks in each sector--