Market Capitalization

[cpatte7372]

Hello all,

Can someone tell me how I go about determining how dominant a stock is within an index. For example, I believe S&P 500 have a weighting factor that is assigned to a security to determine how dominant a stock is with it index. I was wondering if its possible to also determine how dominant a stock is within its index by it market capitalization. Another example would be IBM, Intel or may Cisco where these stocks can literally move on index one way or the other.

Also, if market capitalization is the correct to determine a strong a stock is within its industry, index etc.. can you please tell me what you would consider a high market capitalization number?

Cheers

Carlton

[theplumber]

I make my own S&P index by collecting all 500 stocks data and use an algorithm based on the criteria Standard and Poors have made, which is different than all the other indices. When calculating indices, companies must decide how each stock in it will be weighted. The most popular methodology is based on market capitalization. In an index such as the S&P 500, a stock's weighting is based on the percentage of value of the entire index an individual company comprises. If the market capitalization of a company's stock is $1,000,000 and the market capitalization of all stocks in the index is $20,000,000, the stock would be included as 5% of the index.

The DJIA uses a different methodology -- priced-based weighting. Not surprisingly, this means that the weighting of each individual stock is based on that stock's price relative to the sum of all the stock prices. Assuming that the sum of each stock in a price-based index is $500, a stock trading for $20 would comprise 4% of an index. An unusual impact of such a system is that a stock split has a noticeable effect on a price-based index. If the $20 stock mentioned above declares a 2-for-1 split, ceteris paribus, its weighting would fall to slightly over 2% despite no fundamental change in the companies in the index. For this reason, there aren't too many price-based indices.

The Nasdaq 100 index just switched on December 21 1999 (I think?)from being a pure market-capitalization based index to a modified market capitalization index. This change will limit the weighting of securities that comprise over 4.5% of the portfolio to increase the portfolio's diversification. This change was implemented because the largest five stocks in the index totaled about 61% of its value. Under the adjustment mechanism, the weighting of these five stocks will be lowered to 40%.

To check to see if my calculations are right I compare the percentages to here http://www.cboe.com/OptProd/snp500.asp

Your last question, what is troubling isn't the exact weighting of one stock but a small group of stocks within an index. Most of the time it's the same cast of characters moving all the indicies at once, and make the DOW, S&P and NDX have almost the same chart patterns. An example is here http://www.cboe.com/micro/oex/faq.asp
So if a manager on a mission to paint the tape he/she would buy MSFT to move all indices at once.

[cpatte7372]

Wow Plumber,

Thanks ever-so-much mate for the feedback. Its exactly the kind of information I needed.

Cheers mate.

Carlton

[soylent]

Carlton --

I built a spreadsheet for tracking the NASDAQ 100. It's linked live into the eSignal feed and updates throughout the trading day.

It has index weightings and, as the Plumber points out, it tracks what I call 'the guns'. Since the guns will drive the index direction, I treat them in different weighting than general stocks. If a gun gets 'crazy' the index can react crazy.

Anyhow, I've built a market cap system that calculates the directional market movement of the NQ/QQQ based on volume and Advancing/Declining issues.

Basically, when everything says LONG or SHORT, you're likely to have a good trend day. When things are mixed, you're likely to have a good bracket / countertrend day.

Have fun w/ it...

https://www.vquestcorp.com/NQTracker/NQ Tracker.xls

(Also: the spreadsheet trys to keep up w/ 'weight change' based on relative change since the last index weighting was done and it tracks performance relative to the last 52weeks by stock within the index. It's interesting to see how 'poorly' the QQQ performs compared to its component pieces)

-c

[cpatte7372]

Hey Soylent,

I'm going to have a lot of fun playing around with this spreadsheet today.

Cheers mate.

Carlton

[soylent]

Let me know how it goes...

I'm always adding features to it -- please let me know if you think of anything handy.

I really wish there was a way I could pull 15min data and populate a chart each 15mins but I can only get up-to-the-second data.

-c

[cpatte7372]

I sure will mate...

[cpatte7372]

Hey Soylent,

How many of the guns would you say would need to be advancing in order to move the market?

Also would it be possible to use the spreadsheet on indices as well as stocks?

Cheers mate.

Carlton

[soylent]

How many advancing:
It depends... If MSFT moves A LOT, just MSFT will move the market... Most the time, all the stocks trade technically and bounce around from ob/os... It's when there are big moves on a GUN that things matter...

I was reading about 'rogue waves' (100ft wall of water in the ocean that appears out of nowhere)... Sometimes you'll have that in the markets. When all the guns and all the 'other 90 stocks' in the index align, you'll get a BIG move. Most the time you just get technical drift.

So, you have to look @ what's happening. How big are the big ones moving? Why are they moving? etc...

I keep this LAYOUT handy. I always keep MSFT and INTC on it. I add/subtract others. I check this every 15mins while trading futures to know where the 'market' wants to go / what's the likelyhood of a worthwhile move. How long do I stay short/long, etc... And, I check the spreadsheet every 15 to see what's moving....

(see: www.vquestcorp.com/NQTracker/NQGuns.png )


As for your other Q: Aren't indices just stocks? Not sure what you mean? QQQ is 100 stocks on the nasdaq... (intc, msft, etc...)

Hope that helps!

-c

[Anson]

Soylent,

That is an excellent spreadsheet! Thanks alot for sharing it.

I do have one question tho,
I noticed that the Symbol SPOT doesn't seem to be working... Ok on 2nd look.. seems like it's out!

Has there been a replacement stock taking its place? I am trying to check but I'm not familar with US stocks and sorting thru all the lists is driving me crazy. Can anyone help? Thanks alot!!

Anson

[etrader]

Hello,

That is an interesting spreadsheet. I was wondering if anything special is required to than Excel and esigna Realtime data subscription. Do you have to purchase any other s/w to interface the two?

And last question, can you point me in the direction of some documentation that describes how u did this?

Thanks
Bing

[ScottJ]

Hi Bing,

From the looks of that spreadsheet, it appears that soylent is using just our standard DDE links. As a result, you only need to be an active eSignal subscriber and have access to Excel for these DDE links to work. You won't need any 3p program.

Please check out KB article 1421 on DDE Links for more information.

Thanks.