Finding the Drivers of the Stock Market

Finding the Drivers of the Stock Market
Finding the Drivers of the Stock Market

When traders think about the stock market, they generally view it as the S&P 500 or the DAX or Nikkei.  But stock markets are much more than indices, stocks markets are a market of stocks.  Individual stocks make up the market and there is always a bull or bear market somewhere, it just up to a trader to find them.  Trying to sift through stocks to find the ones that are really moving is easier than you think.  Here are a few quick tips on how to find the stocks that will help you make money.

One of the first things you should consider doing is finding which sectors are actually moving.  There are many tools that can help you evaluate this process, such as a market carpet.  Stock Charts market carpet is a great tool as it tells you which sectors are performing or underperforming over a specific period of time.  You can evaluate time periods as short as 2-days or a long as 60-days. Many financial platforms have a sector performance scenario analysis, and this can help you determine what is moving and why the is either rallying or dropping.  By using some form of sector performance gauge, you can determine where there is a bull or bear market and use that to jump on a trend.

The market carpet uses red for underperformance and green for outperformance and white for neutral.  There are different shades of these colors that tell you how much specific sectors are either out performing or under performing.  Additionally, this tool will show you the individual stocks that are associated with the sector and how well these stocks are performing.  Once you have found the stocks that are moving you can draw a chart of these stocks to determine if it fits your technical criteria for either buying or selling the stock.

Market Carpet – www.stockcharts.com

In general, the sectors are broken down into growth or defensive stocks.  Sectors in the S&P 500 index that are considered growth are technology, healthcare, cyclical (discretionary), financial, energy, materials and industrials. The sectors that are considered defensive are utilities and staples.  Staples are items that people use every day and therefore the products that these company’s sell will remain constant despite the economic backdrop.  For example, you will still buy paper towel for you home regardless of the market conditions.  People generally use electricity or natural gas in the same volume regardless of the market conditions.

Growth stocks are generally those items that benefit from a strong economic backdrop.  When an economy is performing well, people buy more discretionary goods, companies will build more plant and the demand for energy increases.

So to help you determine which way the market is moving you can break down the market into sectors and then determine which stocks are driving the market direction.  You then can combine this knowledge with your view of the macro backdrop to determine if the drivers of the market are fundamental sound.  This is a great way to help you determine what is driving the broader stock market, and is key to finding the stocks that are actually on the move.

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.