Stock sectors all boom and no gloom; how to use heatmap

One year after January 2016 global stock market rout, S&P 500 ‘green shoots’ are growing everywhere.

 

S&P 500 Sector Tracker Heatmap ‘Green shoots everywhere’

There was a rout in global stock markets in January 2016. China’s stock market was limit down from Day 1 of the year. Asian indices like Hong Kong Hang Seng Index and Singapore Straits Times Index were down 30% or more off their 2015 top by early February. Western indices were not spared. As quickly as they dropped, there was as sudden coordinated-like kind of turnaround.

S&P 500 bottomed on 11 February. Hang Seng Index bottomed on 12 February. One year after, this is what the US stock market looks through the ‘eyes’ of the SectorSPDR heatmap. Depending whether you were short or long, this one year was either a total disaster or you must be close to enjoying a climactic sensation.

SectorSPDR heatmap (1 year performance) captured on 16 February 2017

SectorSPDR heatmap (1 year performance) captured on 16 February 2017 | Source: SelectSPDR.com

After one year, even the worst sector has turned around.

 

How to use a heatmap for your sector/stock picking

I am using the S&P 500 Sector Tracker heatmap.

  1. Heatmaps offer a way to visualise stock/sector performance – green for winners and pink for losers. There are shades of green and pink in between to indicate level of gain/loss.
  2. According to your strategy i.e. long or short, you can use a heatmap for sector, stock picking. Choose win/loss leaders accordingly by using the heatmap function to breakdown to the level of information you need.
  3. This heatmap by SelectSPDR looks at the performance of S&P500. Stock sectors are represented by sector ETFs. The size of each box indicates the size of each sector within the S&P 500 pie. In this picture↑, ‘Technology’ represented by XLK  is the largest sector and the smallest sectors are ‘Materials’, ‘Real Estate’ and ‘Utilities’ (XLB, XLRE and XLU; these three have same size).
  4. ‘Financials’ represented by XLF is the best performing sector (with the dark green box in bottom left corner) at the moment.
  5. Click on each sector box, you can see a heatmap of stocks in that sector.
  6. You can change period setting to show the heatmap over different durations.

I have done a similar post on 31 March 2016. You can click on it for more examples.

 

This is a capture of what S&P 500 sectors’ ‘YTD’ performance looks like. This YTD heatmap shows that the only sector that is not performing is the energy sector represented by the XLE ETF.

SectorSPDR heatmap (year-to-date) captured on 16 February 2017

SectorSPDR heatmap (year-to-date) captured on 16 February 2017

If colour or temperature is a guide of the mood or atmosphere in the US stock market, everything looks real green at this moment. This reinforces what index charts and moving averages are saying. See this story ‘Time-tested technical reason stock indices did not collapse yet‘.

Until a few more boxes go pink, there is nothing to be alarmed. If stock market mood changes suddenly say indices, high volume stocks go to losses, more green boxes here will flip to pink.

At moment US sectors are boom and no gloom except this

Switch to the ’1D’ (daily), ’5D’ (weekly) or ’1M’ (monthly) setting so you can see which sectors are in trouble. Click on the sector box that interests you for breakdown into component stocks. That will also show you which are the leading winners and losers.

XLE indicates that ‘Energy’ is the only sector in the S&P 500 that is down year-to-date. Break down XLE further into it’s component stocks reveal individual stock performances here.

XLE component stocks winners and losers (YTD)

XLE component stocks winners and losers (YTD)

The following two tabs change content below.
Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
Loading Facebook Comments ...

Leave a Reply