MARKET STRENGTH INDEXES &

THE STRENGTH RANKING SYSTEM

What they are and how we can use them

Introduction to our Market Strength Indexes - MSIs & our Strength Ranking System - SRS

In order to gauge the health and the strength of the market in general, as well as different Indexes, Sectors, Industries, ETFs and stocks, we have created a number of MSIs and RANKs.

The MSIs - for Market Strength Indexexamine the behavior of their respective Indexes, Sectors / Industries as a whole in an attempt to measure their strength, both in absolute terms and on a relative – comparative basis.

The SRS - for Strength Ranking System, on the other hand, focuses primarily on the individual Indexes, Sectors, Industries, ETFs and Stocks that rank at the top of their group, either on a short- or on a long-term basis.

There is a good reason for doing this.

Research has found that our chances for profitable trading or investing depend on detecting and following the general market conditions – bull, bear, or sideways. The more favorable these conditions are, the better our chances.

In addition to that, research has also found that the securities that been strong in the past are more likely to continue showing strength in the future.

The purpose of both the MSIs and the SRS is to enable us to make more logical decisions that will be based on the wider market’s strength as well as and the strength of individual securities.

To sum up, the general premise of our approach is twofold:

  1. To be able to specify when a trend is developing in either direction and when a trend has started losing its strength.

  2. To be able to choose the strongest securities that have more chances of advancing in the future

 

Below we examine the different types of MSIs and the RANKs that we present on a daily basis, along with some guidelines on how to use them.

 

MSIs - MARKET STRENGTH INDEXES

 

What they are

 

The term MSI stands for Market Strength Index. As the name implies, the MSIs measure the bullish strength of their respective Index or group of Indexes.

 

The MSIs have been constructed to vary between 0 and 100. The higher the MSI, the more bullish the respective security, the lower the MSI the more bearish the security.

 

Types of MSIs

Currently, we offer two groups of MSIs.

The first group includes the MSIs of eight major Indexes or groups of Indexes:

  1. S&P100 – measures the strength of the Standard & Poor’s 100 Index

  2. S&P500 – measures the strength of the Standard & Poor’s 500 large-cap Index

  3. S&P400 – measures the strength of the Standard & Poor’s 400 mid-cap Index

  4. S&P600 – measures the strength of the Standard & Poor’s 600 small-cap Index

  5. NASDAQ 100 - The Nasdaq 100 Index includes the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry

  6. DOW30 - The Dow Jones Industrial Average (DJIA) is an index that tracks 30 large, publicly-owned companies trading on the New York Stock Exchange (NYSE) and the NASDAQ.

  7. Group of most major US Indices

  8. DOW65 - The Dow Jones 65 Composite Average is an index comprised of 65 large public companies in the industrial, transportation and utility sectors.

  9. INDUSTRY – It includes the 104 Industries of the US Stock Market

  10. INTERNATIONAL – It includes more than 80 ETFs representing countries, groups of countries, regions etc.

 

The second group includes the MSIs of the eleven Sectors of the US Stock Market.

 

In alphabetical order they are:

  1. XLB    Materials Sector Fund

  2. XLC    Communication Services Sector Fund

  3. XLE    Energy Sector Fund

  4. XLF    Financial Sector Fund

  5. XLI     Industrial Sector Fund

  6. XLK    Technology Sector Fund

  7. XLP    Consumer Staples Sector Fund

  8. XLRE  Real Estate Sector Fund

  9. XLU    Utilities Sector Fund

  10. XLV    Health Care Sector Fund

  11. XLY    Consumer Discretionary Sector Fund

 

How to use the MSIs

In general, the MSIs offer a simple and objective way to gauge the bullish strength of their respective Indexes.

We can use this information in three ways:

  1. As an indication of the wider market conditions. If the majority of the MSIs is high and/or is advancing, this is a sign that the market, in general, is bullish. If, on the other hand, the majority of the MSIs decline toward zero, we can easily conclude that the general market environment is mainly bearish.

  2.  Another use of the MSIs is to compare the MSIs of different Indexes / Sectors to find which ones are the strongest or which ones are advancing fastest. In the Sectors MSI, for example, it’s easy to see which sectors are strongest and only trade stocks from these strong sectors.

  3. Finally, we can compare the MSIs of the “aggressive” Indices or Sectors with the MSIs of the more “defensive” ones. This is another way to gauge the general market sentiment, as the aggressive Sectors are stronger in a bullish environment.

 

To sum up, the MSIs can help us see whether the market in general is bullish or bearish, second to see which Indexes or Sectors are the strongest, and finally to get another indication of the market sentiment from the changes of aggressive sectors in relation to the defensive ones.

 

 

 

OUR STRENGTH RANKING SYSTEM

 

What the SRS is: 

The SRS lists include the securities of the respective group, Index, Sector, Industry, or Stock, that exhibit the strongest momentum characteristics for the specified time period.

 

Types of SRS

We offer eight types of RANK lists:

  1. Sector Rank. Here, we rank the eleven Sectors of the US stock market from the strongest to the weakest.

  2. Industry Rank. In this type of SRS, we select among the 104 Industries of the US stock market and we present the strongest Industries. In the Industry Rank, we have also included the eleven Sectors, in order to be able to compare the Ranks of Industries and Sectors.

  3. US & World Index Rank. In this type of SRS, we have included the most important US and World Indices. Again, we have included the Sectors for the reasons we described above. This SRS presents the strongest US and World Indices.

  4. US S&P500 Large-Cap Stock Rank. Here we present the large-cap stocks of the US stock market that have exhibited the strongest advance in the specified time period.

  5. US S&P100 Large-Cap Stock Rank. Here we present the S&P 100, a sub-set of the S&P 500, that includes the largest and most established companies in the S&P 500.

  6. US S&P400 Mid-Cap Stock Rank. Here we present the mid-cap stocks of the US stock market that have exhibited the strongest advance in the specified time period.

  7. US S&P600 Small-Cap Stock Rank. Here we present the small-cap stocks of the US stock market that have exhibited the strongest advance in the specified time period.

  8. The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks.

 

For each type we present two types of SRS :

  • The Short-Term SRS is compiled using a combination of price changes limited to the period of last month.

  • The Long-Term SRS is compiled using a combination of price changes that extends from one month to the whole previous year.

 

How to use the SRS

The SRS lists provide a simple way to see which Indexes, Sectors, Industries, ETFs or Stocks have the strongest momentum in the specified short- or long-term period.

This can help us invest in the strongest Indexes, Sectors, Industries, ETFs or Stocks and avoid the weaker ones. In combination with other fundamental and/or technical analysis criteria, this will help us increase our profitability.

Short-term Ranks can help investors or traders with a short-time horizon, while the long-term ranks are more suitable for investors or traders with a longer time horizon. 

Alternatively, investors or traders can choose securities that exhibit a good combination of short- and long-term rankings.