We had a big market drop today. Has Wall Street finally come to terms with the flailing economy and enormous job losses? The future doesn't seem bright, so was today the market reconciling?
Check out my video to hear my take on the market and two key positions, DOCU ()
and ZM (
What I always like to focus on, is first a chart of the S&P 500. The S&P500, or the Standard and Poors 500, is 500+ of the most well known companies that represent a fantastic cross section of companies across the various sectors and industries. It's often the benchmark that people compare their performance to. Meaning, if your portfolio doesn't out perform the year to date performance of the S&P500, then you probably shouldn't be trading independently.
A simple investment strategy if you have a strong conviction in the success of the US stock market, is to simply purchase the
. And ETF ETF
is an exchange traded fund. It trades just lock a stock, but acts a lot like a mutual fund in which a single symbol gives you a proportional ownership of the same stocks that comprise the S&P 500. Instead of purchasing all the stocks individually of the S&P500, the SPY ETF gets you the same exposure as though you purchased them all individually with the convenience of purchasing a single symbol.
Now with that explanation out of the way, how do I analyze my portfolio in relation to the S&P 500? It starts by asking questions.Is there any changes in it's directional bias?
Look at the chart of the S&P 500, does it look like it's no longer trending higher? I always consider the greater market conditions as being a huge effect on my individual stocks.
Next I look at the individual sectors that make up the market. There are 11 unique sectors to the market according to the
(GICS)Here are the list of official GICS Market sectors:
Energy - Materials - Industrials
Consumer Discretionary - Consumer Staples
Health Care - Financials
Information Technology - Communication Services
Utilities - Real Estate
I use a tool called
to visually chart and compare the performance of market sectors to the S&P 500
What I love about
is the ability to customize my dashboards to give me everything I need and want from a data visualization and reporting tool.
In the above screenshot, I can quickly sort sector performance compared to the
. I can compare weekly performance, monthly and quarterly performance. This let's me see numerically how well these sectors are doing compared to my key benchmark.
The more I observe this single report, the more I can see trend changes in which sectors are leading or lagging. It also shows when money is moving from one sector to another because it's performance indicator will show on this report.
This helps to aid me in choosing stocks from sectors that are out performing the
and thus gives me additional confidence that the stocks I choose will also continue to outperform because they will have the larger market momentum in a leading sector to also help my individual trade.
You will get to see some of this analysis in action in my video documentary above.Until next time, good luck, and good trading! Jasen Baker @ Sunday Paper Trading