Friday, June 19, 2009

Gauging Market Strength and Weakness With a Basket of Stocks

As I'm writing, there are 369 more stocks advancing on the day than declining, off from a difference of over 1700 in the morning. If you look at the quote board for my basket of stocks, however (click for detail), you'll see nothing but red. That is because the quote board measures advancing and declining stocks from the market open, not from the prior day's close. Even when the S&P 500 Index was up nicely for the morning, we were showing a number of sectors--and highly weighted stocks within those sectors--trading below their opening prices.

When we see mixed sector performance and a trading range, as we did early this morning, I like to look at the strongest and weakest sectors. Very often a turn in one of those will be a good tell for a market break from a trading range. Once small caps started to weaken, it became clear that the large caps would win the market battle and we'd trade back into the meat of yesterday's range. A look solely at the advance-decline statistic, measured from yesterday's close, would have likely missed the important dynamics behind the morning trade.

Having done the 4 AM - 8 PM work schedule for two weeks running now, it's time to get away from it all and find a place where no cars go. Have a great weekend.