Market Insights

The S&P 500 keeps hitting new 52-week highs, but how strong is the rally? Today’s post will use TradeStation’s award-winning platform to diagnose the health of the move.

The method will use the RadarScreen tool to compare the price performance of various sectors. Are investors favoring “risk-on” stocks that are consistent with a bullish market? Answering that question can help confirm or invalidate the current move.

The workspace pictured below includes several indexes grouped into “risk on” and “risk off” categories.

The “risk on” indexes represent segments of the market that typically perform well during economic expansions or at time when investors feel confidence. They include groups like transportation, consumer discretionaries, technology and industrials.

The “risk off” indexes aren’t as sensitive to the business cycle. They include “safe havens” like utilities and consumer staples, which often outperform the broader market when sentiment is weakening. Consumer staples, in particular, tend to have higher returns before the broader drops. (See the chart below.)

Using RadarScreen

RadarScreen is an automated tool that can track up to 1,000 symbols at a time. It works by applying one or more studies to a list of tickers in a grid. The example in this article uses “Description” and “21d.” Description is built into TradeStation, listing the name of a stock or index. 21d is a custom indicator (available in the zip below) that shows the price performance over the last 21 trading sessions. (This approximates a calendar month.)

Almost all the “risk on” indexes have risen more than the S&P 500 in the last month. Also notice how the “safe havens” have lagged. This can demonstrate bullish sentiment toward riskier assets.

Note: The workspace and indicators referenced in this article are available in this zip file. Customers wishing to use exchange-traded funds (ETFs) instead of Select Sector Indexes can find matching ETFs on our disclosure page.