Multiple Views of the “Market”

This was written by Peter Mauthe, VP of the American Association of Professional Technical Analysts. These comments are his analysis and do not necessarily represent the opinions of others who may share the analysis.

Markets are not always what they may appear. Let’s look at the present market. Each of the graphs below are provided by StockCharts.com and are shown in a specific order. They are all daily basis graphs, covering the last 6 months.

The top chart is an index comprised of the 100 largest members of the S&P 500 index weighted by their respective market capitalization. This includes the technology leaders that are driving the NASDAQ 100 index. From this view, the “market” appears to be going up in impressive fashion.

This graph illustrates the entire S&P 500 weighted by their respective market capitalization – the normal view. This view of the “market” mutes somewhat the influence of the large tech companies that have been getting most of the headlines as well as most of the recent flow of investor capital.

The graph below shows the S&P 500 but instead of each component weighted by its market capitalization, each component is weighted equally. This view of the “market” illustrates what the experience of the average stock in the index has been.

The last graph is of the New York Stock Exchange Composite Index which includes all of the stocks on the New York Stock Exchange. The components are weighted by their respective market capitalization. This graph validates the market view as shown in the equal-weighted S&P 500 graph shown immediately above.

The majority of the market components are telling a story very much different from the story much of the public is hearing and seeing in the popular press. It is at times like these that many investors make mistakes by “chasing the shiny object” which are the stocks distorting the weighted popular averages.

This publication is for information purposes only and not a recommendation to buy or sell securities.