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Marco is a trader of stocks, options, currencies, and futures. He has been fascinated with the financial markets ever since he bought his first stock at 11 years old. Marco entered the business world at the age of 13, with the creation of an extremely successful retail website... More
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  • The Market Was Up, But I was Down... Where's the Heat? 0 comments
    May 1, 2009 1:45 AM | about stocks: BAC, JNJ

    Ever wonder why your portfolio is down on an up day or vice versa (most of the time when we're up on down days we are just thankful and don't worry about why..)? A great way to explain this is to see where the money is moving in the market. An easy way to do this is to look at a heatmap. Heatmaps are used to see where the "heat" or where the hot stocks are in the market. The first heatmap below is for a 1 week period as of market close April 28, 2009.

    The next heatmap is for a 1 week period as of market close April 29, 2009.

    This particular map shows stocks over a 1 week period and where the money has been moving in the market. The bigger the area the bigger the stock market cap. The brighter the color the higher/lower the stock has traded and if the box is black it is neutral (in terms of %). Notice the highlighted stock Johnson and Johnson (NYSE:JNJ), the color has not changed over the two different charts compared to other stocks.The percentages are defined from the heat bar below.

    If we look at the highlighted box on heatmap ending April 29, we see JNJ is the first shade of red (change of up to -1%) on the heat bar. As of April 29 it dropped less than or equal to 1% but more than 0% (for the past week).

    Now to stress the different types of heatmaps used. The heatmap below is of Bank of America (NYSE:BAC) and breaks the stocks down by the sector compared to the JNJ heatmaps where it broke stocks down by indices (not preferred by many because it has repeated stocks on the heatmap). Breaking stocks down by sector is nice because it does not list any stock twice. It lists all stocks which have options available (as in Calls and Puts). This is a much better way to see the overall market.

     

     

     

     

     

     

     

     

     

     

     

     

     

    The next heatmap is also of BAC and we can see that a 1 day change has resulted in a weekly color change for the BAC box on the heatmap. The box changed from a red to a bright green (change in 6+%).

    Heatmaps are a great way to see where the money is moving in the market. Many traders use heatmaps on a week to monthly basis, where very few use them for less than a week. Heatmaps are used to determine where to buy stocks or short stocks. If one is bearish on the market he/she may choose to short a stock that has performed very well compared to other parts of the sector. Similarly if someone is bullish, he/she may choose to go long stocks which have underperformed the rest of that sector. Using heatmaps certainly won't make you rich, but they certainly will add to your overall knowledge of picking stocks. If you've ever watched your portfolio drop in an up market (assuming you aren't shorting), this may help you figure out which stocks to add or take out of your portfolio.

    Disclosure: Long BAC

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