Monday, July 13, 2009

Tracking Stock Market Trending


Long time readers know that I track eight S&P 500 sectors each week, assessing their short-term trending behavior with a measure that I've called Technical Strength. The measure essentially tracks a stock's slope and goodness of fit to a trendline and then averages scores across highly weighted stocks within each sector to obtain a sector reading. The stocks that I use are the same 40 stocks (five across each of the eight sectors) in the basket that I report upon in my Twitter updates. (This post shows all the stocks and how I track them).

In this post, I average each week's Technical Strength readings across the sectors to obtain a single weekly reading for the S&P 500 Index. The idea here is that "trendiness" should lead price highs and lows, as those highs and lows typically occur during topping and bottoming processes that display reduced momentum/trending.

We can see how trending did indeed top out ahead of price during the recent market rise; we can also see how we do not as yet see any indication of bottoming from Technical Strength. Note that these are weekly readings; similar reasoning should hold for other time frames with daily or even intraday readings of trendiness, a promising research direction.
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4 comments:

Joslin Lolo said...

Hi Dr.Brett, a very nice summary stat, look forward to seeing more! intraday would be interesting!

Mayare Real Estate said...

Hi Dr. Brett

Could yo please show the calculations in order to be able to do it by myself?

I want to be able to fish and not just to eat the fish

Brett Steenbarger, Ph.D. said...

Thanks, Joslin; I will update the stat periodically.

Brett

Brett Steenbarger, Ph.D. said...

Hi Mayare,

I have provided the basic logic underlying the trend measure so that those inclined to fish can research the ideas for themselves.

Brett