Friday, February 19, 2010

Midday Briefing for February 19th: Assessing Stock Market Participation

As regular readers are aware, I like to follow a basket of highly rated stocks across S&P 500 sectors to give me a sense for the relative participation in market moves. When the S&P makes a new high or low, it's helpful to see how many stocks are contributing to that strength or weakness. Very often, the seeming breakouts to new highs that are not accompanied by broad participation are the moves most likely to fail and return to trading ranges.

For traders not constructing and tracking their own baskets, FinViz offers an excellent spectrum view of sectors and stock performance within those sectors (above). When the stocks are showing meaningful rises, we see them in the green end of the spectrum; those showing meaningful declines are in the red end. When we see many stocks in the black region between green and red, it suggests that a large number of issues are not moving significantly.

In a single glance, such a perspective can lead us to be cautious about chasing the upside when we've made day-over-day highs in the market index.