MarketCarpets

Understanding what is happening in the market from a technical perspective can involve looking at lots of charts. There are charts of high-level composites and averages, sector indices and industry indices, not to mention the charts of individual stocks themselves. Stock scans can often reduce the number of charts that an analyst must look at, but they always leave you wondering, “Did the scan miss anything?”

StockCharts' MarketCarpet tool can help solve these problems. MarketCarpets provide a representation of what sectors, industries and stocks are hot at the moment. Think of it as a visual stock screening tool; simple to use, yet extremely powerful.

Construction

The MarketCarpet tool presents a large collection (universe) of securities as a “carpet” of colored squares. Each square represents a stock, mutual fund, exchange-traded fund (ETF), or index. Within the carpet, the squares may be arranged in sub-groups based on sector, industry group, or other characteristics.

There are may ways to view the MarketCarpet—by group, price and technical measurements, time, size, and color scheme. The squares are color-coded to tell you at a glance which stocks are performing well or poorly.

MarketCarpet Universes

StockCharts offers several predefined MarketCarpets. You can find predefined MarketCarpets for various indexes, sectors, and mutual funds.

MarketCarpet Indicators

The color-coded performance of securities on the MarketCarpet is based on their price change by default, but the MarketCarpet can be configured to base performance on other indicators, including RSI, Bollinger Band Width, SCTR values and Full Stochastics.

Some indicators can operate by the change in latest value or over a specific period.

Learning More

Interpretation

By default, the MarketCarpet will use price change values to color-code the squares, but there are several other indicators you can choose from. Below is a brief description of each indicator available for MarketCarpets, as well as interpretation guidelines for that indicator.

Performance

You would select this option if you want to view the percent increase or decrease in a stock's closing value over a specific time, i.e. one day, five days, one month, or a year. When viewing by Performance, select a time period from the dropdown menu in the Color By category. You can also select whether you want to view by Market Cap, Equal Weight, or Price.

Since the examples in this page use the Red to Green color scheme, stocks that have increased in price will be green, while those that have fallen will be red. The timeframe for the price change measurement is displayed below the chart.

Up Days-Down Days

As its name implies, this indicator counts the number of days a stock moves higher and then subtracts the number of days it moves lower during the specified timeframe. This measurement only works over specific timeframes. To get good results, use the five-day (5D Change) or longer choice.

This indicator is often the best for measuring overall market breadth and sector rotation effects. This measurement is helpful if you are interested in finding stocks with consistent increases or decreases.

SCTR

The SCTR, or StockCharts Technical Rank, is a numerical score that ranks a stock against its peers using six different technical measurements. On the MarketCarpet, the SCTR values can be colored by latest value or different periods.

The SCTR score is calculated using a wide range of indicators covering several different timeframes, so it is an excellent summary of a stock's performance relative to its peers. When viewing performance by Latest Value, you can easily see which stocks have high and low SCTR scores. If you view performance for specified timeframes, you can find stocks with improving or worsening SCTR scores.

RSI

The RSI indicator, which ranges between 0 and 100, is described in detail in our ChartSchool article on the Relative Strength Index (RSI). The MarketCarpet computes the value of the 14-day RSI for every stock. If viewing in Latest Value mode, each square is colored based on the stock's RSI value for the date specified. For the Period modes, each square is colored based on the increase or decrease in the value of RSI over the selected timeframe.

RSI measures momentum by comparing the magnitude of a stock's gains on up days with the magnitude of its losses on down days. In a sense, it combines two other MarketCarpet Indicators (Price and Up Days-Down Days) into a single value. In Latest Value mode, this indicator shows stocks that consistently performed well during the previous 14 days. In Period mode, the carpet will point you to some potentially great turnaround plays.

PPO

The PPO indicator is described in detail in our ChartSchool article on the Percentage Price Oscillator (PPO). The PPO is similar to another popular indicator, the MACD; the difference is that the PPO is scaled to be price-independent. This means that you can compare the PPO value for a stock that is $90/share with the PPO value for a stock that is $3/share, which isn't possible with the MACD. On the MarketCarpet, the PPO indicator is calculated using the standard 12-26-9 parameters. The Latest Value and Period modes are supported.

Green boxes reflect positive PPO values, which means the 12-day EMA is above the 26-day EMA. The darker the green, the more significant the positive difference in the EMAs. Red boxes reflect negative PPO values, which means the 12-day EMA is below the 26-day EMA. The darker the red, the more significant the negative difference in the EMAs.

Aroon Oscillator

The Aroon Oscillator plots the difference between Aroon Up and Aroon Down. 25-day Aroon Up measures the number of days since a 25-day high, while 25-day Aroon Down measures the number of days since a 25-day low. You can use the Aroon Oscillator to spot strong or emerging trends with big moves. Positive values suggest an uptrend, with values above +50 pointing to a strong uptrend. Negative values indicate a downtrend, with values below -50 indicating a strong downtrend.

In Latest Value mode, symbols with an Aroon Oscillator value above zero will have green boxes, while those with a value below zero will be red. Dark green boxes show stocks with values above 50, and dark red boxes show values below -50. In Period mode, the dark green boxes show the most significant positive changes, and the dark red boxes show the most significant negative changes.

Bollinger BandWidth

Bollinger Bands are two lines that are drawn two standard deviations above and below the 20-day moving average for a given stock. The distance between the upper and lower lines is the Bollinger BandWidth. (Our ChartSchool article on Bollinger BandWidth gives more details.) The distance between the upper and lower lines changes depending on the stock's volatility, meaning Bollinger BandWidth is a measure of a stock's volatility.

The MarketCarpet displays Bollinger BandWidth on a quasi-percentage basis so that stocks with different prices can be compared. In Latest Value mode, the squares are colored using the upper band's value minus the lower band's value, divided by the value of the central moving average, and multiplied by 100. The result is a value that ranges mostly between zero and 100 (although higher values are possible).

Low values correspond to low volatility, and high values correspond to high volatility. You can use Latest Value mode to find stocks with high (green) or low (red) volatilities on the specified date. Change mode will show you which stocks have become more volatile (green) or more stable (red).

Bollinger Band Position

Bollinger Bands, described in detail in our ChartSchool article on Bollinger Bands, center around the 20-day moving average for a given stock. The Bollinger Band Position indicator converts the area between the upper and lower bands into a range from +100 (the upper band) to -100 (the lower band), with 0 as the position of the central moving average. Note that if the stock is above the upper band, it will have a value above +100; if it's below the lower band, its value will be below -100.

In Latest Value mode, dark green stocks on a Bollinger Band Position MarketCarpet will indicate stocks near or above their upper Bollinger Band. Dark red stocks indicate the opposite. Remember that the indicator says nothing about the width of the bands; stocks with very narrow Bollinger Bands can result in misleading values. Always double-click the interesting squares to see the underlying SharpChart for those stocks.

StochRSI

StochRSI is an advanced indicator that combines the Stochastics and RSI oscillators. It ranges between 0 and 1. This indicator is quite sensitive and is prone to giving false signals, but will often give signals very early in important price movements. The indicator is described in detail in our ChartSchool article on StochRSI.

On the StochRSI MarketCarpet, Latest Value mode will show high (green) and low (red) StochRSI values on the specified day. In Period mode, the carpet will show stocks with significant increases (green) or decreases (red) in their StochRSI values over the specified time. Note that StochRSI is designed to move quickly from 1 to 0 and back again, so most squares on a StochRSI carpet will either be dark red or dark green.

Full Stochastics

The Full Stochastic Oscillator is a momentum indicator that fluctuates between zero and 100. This indicator measures the current price level relative to the high-low range over the lookback period (14 days). A reading above 90 means the current price is near the high end of the range, while a reading below 10 means price is near the low end. Readings below 20 suggest a short-term oversold condition, while readings above 80 indicate a short-term overbought condition.

In Latest Value mode, symbols with a Stochastic value above 50 have green boxes, and those below 50 have red boxes. The dark green boxes represent stocks trading near the high end of their 14-day range, while the dark red boxes highlight stocks trading near the low end. In Period mode, the dark green boxes show the most significant positive changes, and the dark red boxes show the most significant negative changes.

Analysis Examples

MarketCarpets can be used in several different ways to give you different perspectives on the market and individual stocks. Here are a couple of examples of how to use MarketCarpets for analysis.

Finding Buying or Shorting Opportunities

MarketCarpets allows you to visually scan a large group of stocks, quickly finding the best buying or shorting opportunities.

The universe of stocks you choose will depend on your trading style: you can use the S&P 500 MarketCarpet to look for large-cap candidates or the Major Indexes MarketCarpet to find high-tech and blue-chip possibilities. The measurement you choose will also depend on your trading style.

The timeframe is vital in this type of short-term analysis. Since you're looking for stocks to invest in right now, you want to use a shorter timeframe for your analysis. Either choose the Latest Value mode (a snapshot of current values) or use Period mode with a reasonably brief timeframe.

In the sample MarketCarpet below, the Bollinger Band Position in Latest Value mode is applied to scan for investment opportunities in the Major Indexes MarketCarpet.

Exploring Sector Rotation

MarketCarpets are a great way to explore sector rotation within a group. In the past, analysts have tried using sector-oriented indexes or funds to represent the performance of each sector as a whole. The problem with this approach is that each sector index hides what is happening with each of the stocks that make up that index. One weak stock may cause the sector index to decline, even when all of the other stocks in the sector are healthy.

The StockCharts S&P Sector MarketCarpet avoids that problem by showing all the components that make up each S&P Sector index. By looking at the carpet as a whole, you can better understand each sector's true strengths or weaknesses.

Here are the steps to follow when using MarketCarpets for sector rotation analysis:

1. Since this is a longer-term analysis, use the Period mode and extend the timeframe. In this example, we'll use the Performance measurement with a one-month (1M Change) timeframe.

2. Explore the other timeframes, starting with the 1D change, to see the change over time. Look for areas of green and red to move about the MarketCarpet within the sectors.

3. Size by Market Cap and Equal Weight (where the squares are equally weighted) to see whether the sector rotation changes. Differences between these two may indicate that a few large stocks are skewing the performance of the index as a whole.

4. Once you have noted any apparent sector rotation with the Performance measurement, switch to Up Days-Down Days or the RSI indicator. Do these other MarketCarpet views confirm the sector rotation you saw with the Performance measurement?

The MarketCarpet below shows the Performance measurement set to a one-month timeframe sized by MarketCap. The Energy and Utilities sectors are the top performers and Real Estate and Health Care are struggling.

The second carpet shows the six-month change in performance. At that time, Industrials and Technology were the leading sectors. No sector was experiencing negative performance.

The sector rotation within five months is evident when viewing the MarketCarpets tool in StockCharts.com. You can see how investors rotated from offensive to defensive sectors, indicating that investors were becoming more fearful.

The Takeaway

MarketCarpets are an excellent visual tool that represents the performance of all group members and offers different indicators to measure that performance. They can be used to select the best-performing stocks in a group and determine whether there is broad participation in a trend or whether a few members are skewing the index's performance.

MarketCarpets are highly configurable. A few examples have been presented here, but you should construct your own MarketCarpet to suit your investing style.