Wednesday, April 08, 2009

Using a Basket of Stocks to Monitor Intraday Advance-Decline Strength and Weakness

Please check out the earlier post on assessing intraday advance-decline strength to understand the rationale behind the quote board above. The board is one of the screens I look at during the day; it is assembled in e-Signal. If you click on the screen capture above, you'll see the 40 stocks that are part of the basket of stocks that I track for the blog. Five stocks from each of eight S&P 500 sectors (Materials, Industrial, Consumer Discretionary, Consumer Staples, Energy, Health Care, Financial, Technology) make up the basket. Note that the stocks are arranged by sector so that I can identify sector strength and weakness at a glance.

For the column that lists "Change", I right click and select the option "Compute Change" and "From Open". What this shows me at a glance is how the stocks are behaving within the regular trading day, ignoring the impact of any opening overnight gaps. I have found that to be very helpful in gauging when the market is in a trending mode intraday (the great majority of stocks up or down) vs. non-trending (a mix of shares rising and falling).

In a range market, stocks won't vary greatly from their opening prices, creating a mix of advancing and declining issues. Because the changes on the quote board are color coded as green (up from open) and red (down from open), it is easy to see at a glance when there is a mix and when directional trade from the open dominates. It is the count of stocks up and down from the open that I report during my intraday Twitter posts (free subscription).

If you're looking for a stripped down version of monitoring intraday advance/decline strength by sector, you can replace the stock names with the sector ETFs: XLB, XLI, XLY, XLP, XLE, XLV, XLF, and XLK. You might also include IWM (small cap stocks) and QQQQ (NASDAQ 100 stocks) as "sectors". At a quicker glance, this will give you advance-decline strength by sector, highlighting sectors showing relative strength and weakness intraday.

In an upcoming post, I will outline yet another valuable application of these data. And, by the way, my morning Twitter posts before the market open outline the number of stocks in this basket that are in short-term uptrends, neutral, or downtrends; this provides a bigger picture view of market strength and weakness, particularly if you compare the numbers from day to day.