Tuesday, February 09, 2010

A Look Underneath the Hood of the Broad Stock Market

If you click on this screenshot, you'll see the 40 stocks that make up my basket of highly weighted S&P stocks across the eight sectors that I routinely track. It was a strong day on many counts: the market was up from Monday's close; many more stocks were advancing than declining; and we had only 12 stocks of the 40 down from their opening prices.

Interestingly, however, when we look at each stock's volume-weighted average price (VWAP; columns at furthest right), we can see that only 16 of the 40 closed above their VWAPs. That sounds more like range trading than an uptrend, and it will have me looking closely at those VWAP levels early tomorrow.

It's true that understanding the broad market can illuminate the action of individual stocks and stock sectors. It's equally true, however, that tracking the behavior of the stocks and sectors can illuminate the broader market.