Understanding the Market Snapshot (Part 1)

Daily Market Snapshot (Part 1)

Market Indexes

The current condition or health of the stock market is generally measured by the performance of baskets of stocks called indexes. The Dow Jones Industrial Average is comprised of the just 30 industrial stocks, where as the Standard and Poors 500 is comprised of 500 stocks that represent 9 broad industry groups. The general public, for the most part, pays attention to the DJIA. Market professionals favor the S&P 500 because it is far more representative of the broader market. The S&P 1500 represents an even broader swath of companies and industries.

Daily Market Snapshot

At GWM, we provide our clients with a very simple gauge of market health. We call it our Daily Market Snapshot. The Snapshot gives us an instant read on the condition of the market for the day.

Market Snapshot Basics

Firstly, we use the S&P 1500 due to its broader representation of the market place. The candlestick chart below illustrates the daily price movement of the S&P 1500. Green candlesticks are indicative an up day and red candlesticks are down days.

To remove some of the noise caused by market choppiness we plot a 20 day moving average (DMA) and overlay it over the candlesticks to make it easier to detect the trend of the market. A 20 DMA is created by simply adding together the closing prices for 20 days and dividing that total by 20. Each day going forward you add in the new closing price and drop off the oldest closing price. In the chart below the 20 DMA is plotted in blue. The outer red and green lines represent contracting and expanding volatility and are a topic of another presentation.

The chart above depicts a time period from May 2011 to early December 2011. It is easy to see that the market crashed in August and began a very quick recovery in October. Further analysis of the chart shows that the market can get ugly when trading below the 20 DMA and conversely can give us some very good returns when trading above the 20 DMA.

Market Snapshot (Pie Chart)


To get a quick idea of the current day’s market health we merely add up the number of stock in the S&P 1500 that are trading above and below their 20 DMA. The percentage of stocks trading above their 20 DMA are depicted in green in the pie chart below and the percentage of stocks trading below their 20 DMA are depicted in red. Simply put, more green than red is good and more red than green is not good.

The one day Market Snapshot pie chart is not unto itself a buy or sell indicator, it merely tells us which way the wind is blowing at the moment.