I thought I would take a minute this morning and share my market internals screen. I have everything tuned to 2-minutes for sensitivity, but anywhere from 5 to 15-minutes is also useful. I custom-coded this chart, so it is not publicly available. Send me an email at info@bluprinttrading.com if you would like me to send it to you with the custom-coded indicators built-in.
You see the New York Stock Exchange stats and broad NASDAQ markets in the upper left corner. Today, we see roughly 2:1 positive NYSE and NASDAQ breadth (there are 2 stocks up for every stock that is down). The NYSE is slightly weaker than the NASDAQ. Yesterday, when we were trending, it was more like 5:1. The candlestick chart below the stats is tracking up versus down volume. Today, we have more volume going into gainers than losers, but not by a lot.
The next chart below is up versus downticks. We have been mostly in the green today but slipped into the red over the past 10 minutes. Ticks can often diverge from price, giving you a warning of a turn during the day. They also give you a sense of tempo and strength, depending on whether they are hanging out above or below zero. The ticks have traded mostly above zero today, with the pullback now coming during lunch in Chicago and New York – typical behavior mid-day and not calling the positive trend into question.
The final chart in the sequence on the left tracks the advances minus declines for the S&P 500 index. You can see we are dancing around the zero-line today, but the A/D line has continued to improve throughout the day. That is classic “balanced” behavior, perhaps transitioning to an uptrend that will allow the markets to take out yesterday’s highs.
The screen then shows the S&P 500 index with 2-minute candles in the middle of the screen. Below is a histogram that monitors all four major indexes combined; the S&P 500, NASDAQ, New York Stock Exchange, and Russell 2000. The ticks are then broken down by individual index below at the bottom. Cumulative ticks also help confirm turns throughout the day, as well as strength or weakness.
Note also the readout of each of the 11 S&P 500 Sectors ranked in order of their weight in the index (also labeled) with a readout of the gain or loss for the day. I color code these red or green depending on whether there is a positive or negative gain. At one glance, I can sense the market breadth – like today when half are red and half green. That tells me at least that we are in balance and moving sideways.
But then, I look at the weighting of the greens versus reds. Clearly, the weightings are tipping in favor of higher versus lower prices. But the gains are only slightly above zero at this writing – so this tells me the market is still balanced, trying to tip towards an uptrend.
On-trend days, the sectors tend to correlate to mostly green or mostly red. Knowing the weight also helps me assess whether the large-cap tech and growth stocks can overcome the broad market due to their dominant cap weightings. I know the weighting of the large-cap leaders by heart, so I don’t need specific readings, but a quick heat map can resolve any doubts.
The heat map below shows me by square size, color, and sector what companies contribute to gains today up or down. I typically apply the heat map to the S&P 100 or NASDAQ 100 for quick reference. If the index is going to be range bound, the heat map can help you find a stock that might be trending.
Each morning outlook is based on our ongoing narrative, the previous day’s action, and the overnight trading in Asia and Europe. I am well prepared for the day ahead – based on considerable trading experience. Giving the NYSE about 15 to 30 minutes after the open to settle down, combined with a quick heat map, gives me the final information I need to know as to whether the probabilities favor the market trending up or down or a trading range. The trading tools and tactics are different for balance versus trending – as you would expect.
Tempo also adds confidence to the picture as it tends to be faster on trend days. Asking me to trade a slow day with a slow range is boring. I have to step down to a 1 minute or tick chart and trade some size to make it interesting.
I hope this helps you better understand when I mention “internals,” “tempo,” and “monitor for continuation.” What is monitor for continuation? We ensure that the internals don’t start petering out while playing a breakout or breakdown from a key level. The internals should be confirming the instrument’s progress.
We will emphasize these principles over and over in the new trading room – currently in beta test.
A.F. Thornton