A Relative Strength Heat Map

by: Bill Zimmer Monday, April 20th, 2009 at 10:01 am

Heat maps seem to be all the rage today as brokers advertise how easy it is to spot where the action is at the moment.  While that may or may not be beneficial depending upon your time frame of trading it has sparked some interest and experimentation on my part.

One report that has been published by this site for the longest time has been what I’ve called the most improved.  The most improved list (209 Industry Groups, 432 ETF’s, and 155 Indexes) is a measurement of relative strength improvement over the last 21 trading days; which approximates one month of trading.    It was once a picture of the top 10 only, in the weekly newsletter and now appears all inclusive in a Microsoft Excel Spreadsheet. Like everything else, hopefully, it improves over time.

In the navigation bar on the left see Most Improved by Relative Strength for more detail.

To me this seemed like an obvious data report that could benefit by color coding and simplification.  The data points were changed from the actual number amongst the total number, i.e. 126 of 209, to a percentile rank, i.e. 1 to 10 indicating the percentile the improvement fell into out of the 209 or 435 or 155.

Then I split the percentile ranks into roughly thirds, most improved third, the worst third, and the middle third. Then a background color is added to the cells; Green, Red, Grey.  An interesting picture develops that should help one understand and take advantage of rotation.

screenhunter_01-apr-17-1404

This is a weekly report published on Friday evenings.  I’ve highlighted GLD since it turned red or cautious in early March just as about everyone, and I mean everyone was touting the benefits of gold and why it should be in your portfolio.  At the same time it was being touted so, this heat map was showing money flow out of GLD or Gold and into other areas. See the heat map colors on the weekly chart below:

gld090420

This is not to say that Gold will not some day go to $2,000 or $5,000, what this is saying is that as everyone was writing about and touting gold, the smart money was moving elsewhere.  This weekly heat map will hopefully tell us when this “smart money” decides to move back into Gold.

To access the latest most improved (as of 4/17/09) for Industries, Indexes, and ETF’s: Clcik Here!