The Heat Map Sucks

The heat map sucks.

I'll give you my specific gripe with the ThinkOrSwim one, which is that it counts Google twice because of the two share classes. I put a ticket in to have that fixed in 2014 and it still counts it twice, so I got that going for me anyway.

The real problem isn't the bug though. You're sitting there scanning 500 stocks when maybe fifteen of them matter.

What I actually do takes about a minute.

Go to your favorite heat map website, hit Visualize, and pull up the S&P 100 instead of the 500. The S&P 100, this is all that really matters.

You could take it further than that too. Sort the thing by market cap and start working down the list, and you're going to hit ExxonMobil and be able to basically stop, which puts you at maybe fifteen products, twenty if you want to be thorough. 

Those are the ones doing the work.

Everything under that isn't going to change your read on the tape.

Size isn't the only filter either, because the bigger question is whether the thing can even move. 

Take crap like J&J, which is a big company, but the volatility's low in there and it's not going to make a difference. 

You can sit and watch it have an active day and it still won't tell you anything about where this market is headed.

Compare that to what happens when a couple of the monsters of tech start rolling over at the same time. 

The monsters of tech are the mega market caps, your $3 trillion and above crowd, and when two or three of those go at once, that's your signal. Everything else is confirmation after the fact.

So the whole routine is a market cap sort, the top fifteen or twenty names, and one question: do the big ones agree with each other?

If they're all moving the same way, you've got a market with a direction and you can trade it. When four are green and three are getting hit, that's rotation, and rotation is a completely different animal that most people misread as strength.

I can run that in about a minute before the bell and know more about what's going on than somebody who spent twenty minutes staring at 500 colored squares, half of which can't move enough to matter and one of which is Google counted twice.

Reading the tape quickly won't save you if the position is sized wrong.

That's one of five checks I go through before anything goes on, and the sizing one decides whether a loss is a scratch you shrug off or the one you don't come back from. 

The report reads in under a minute, sells for $29.97 the rest of the year, and it's yours free today.

Grab the checklist here.

To your success,
Don Kaufman