State of S&P components
Comparing S&P components to S&P
May 20th 2022 was an important day in the market. S&P fell 20% from its ATH (All Time Highs). Technically, that is called bear market territory. S&P did not close below that magic number of negative 20%.
So here are Monetive, we decided to take a deeper look into the S&P components and try to determine the state of the components.
We decided to give them a relative strength and/or relative weakness rating. The thinking here is that let’s identify components that way weaker than the S&P or way stronger than the S&P. That way we have an easy GO TO list of potential short or long trades.
We have seen one by one sectors/components taken to the woodshed by this current drawdown in the market. Last couple of weeks, sectors or components that have held up well saw the biggest drawdown. Stocks or sectors that felt like safety or that had relative strength fell the most. The generals like Apple (AAPL), Agricultural Industrials like Deere (DE), consumer / grocery/ inflation safety plays like Target (TGT), Costco (COST) had the biggest fall this past week.
Our thinking is that if S&P stabilizes for the next couple of weeks then we have our components that have held well all this while, probably go higher sooner or at least have an easier time going higher. And the bounce we get in the stocks that have lagged drastically, will tell us the strength of the bounce in S&P.
If S&P in the next 2 weeks does not stabilize, then we can probably assume that the safe haven components until now have a greater chance to fall big. This is based on the price action of Target and Deere this past week and the also the assumption that the market is targeting every section of its constituents one by one.
Here is what we did and the process we followed to get to the list and its relative strength.
Looked at the S&P sector ETF’s like XLK, XLP, XLB ….
Made a list of TOP 5 holdings in those sector ETF’s
Checked each of those holdings technically by doing Fib’s (all drawn from Covid lows)
Gave them a relative strength/weakness score based on the Fib levels and compared it to current S&P % drawdown
Here is the list of the Top 5 holdings of the S&P sector ETF’s
AAPL, MSFT, V, MA, UNH, JNJ, PFE, ABBV, TMO, AMZN, TSLA, HD, MCD, NKE, UNP, UPS, RTX, HON, CAT, DE, FB, GOOGL, NFLX, DIS, LIN, FCX, NEM, SHW, APD, PLD, AMT, CCI, EQIX, PSA, XOM, CVX, EOG, COP, TSM, ASML, TXN, LRCX, AMD, AMAT, NVDA, NEE, DUK, SO, D, SRE
The purpose of this list was not only to look under the hood but also scan overall market easily, and also find tradeable ideas readily.
For Relative strength/ weakness rating, we used the following:
+ve rating means better than current S&P drawdown.
1 : means less than 15% drawdown from it ATH or recent 52 wk high
2: means less than 10% drawdown from it ATH or recent 52 wk high
3: means Close to ATH, 52 wk high or at ATH
-ve rating means below current S&P drawdown.
-1 : at or close to 23.6% fib retracement calculated from COVID lows to ATH
-2 : at or close to 38.2% fib retracement calculated from COVID lows to ATH
-3 : at or close to 50% fib retracement calculated from COVID lows to ATH
-4 : at or close to 61.8% fib retracement calculated from COVID lows to ATH
-5 : at or close to 78.6% fib retracement calculated from COVID lows to ATH
-6 : Below COVID lows
-7 : 1.272 fib support calculated from COVID low to ATH
This list is really helpful for us to find the overall strength of the market and find trades simultaneously. This list has been updated as of 5/21/2022. Hence the title of the post is Current State of the components. The file is attached below:
There are many ways to find the internal breadth and strength of the market. There are many ways to find sector rotation and strength.
We are presenting another way of seeing the market components.
We also be post updates to this and other opinions on twitter. Please follow us @monetivewealth & @archna2011