Introducing "Bubble Charts"

JC Parets
October 28, 2020

As Market Technicians, we are in the data visualization business. We're looking to visualize the behavior of market participants by analyzing price and its derivatives via traditional charts, spreadsheets, and other methods.

Today we want to introduce a slightly different way we like to visualize market behavior as we may begin incorporating it into our analysis more often if you find it helpful.

Without further ado, let's check out some "Bubble Charts."

First, let's look at what we're trying to accomplish with this specific chart. We wanted to analyze how the Nifty Sector/Thematic Indexes performed since two key dates, one long-term, and one short-term.

On the x-axis, we have the performance since each security's lowest price in Q4 2020 when the market was crashing. And on the y-axis, we have the performance since each security's highest price in Q2 2021 when the majority of stocks peaked.

And the size of each"bubble" is based on the weekly RSI value (of 0-100), with small bubbles indicating low RSI readings, and large bubbles indicating high RSI readings.

Click on chart to enlarge view.

So how do we interpret this? Well, in the top right of the graph we've got secular leaders like IT, Pharma, and Auto gaining the most off the Q4 lows while losing the least off of their recent highs set in Q2.

And in the bottom left we have secular laggards like PSU Banks, Public Sector Entities, and Central Public Sector Enterprises gaining the least off the Q4 lows while losing the most off of their recent highs set in Q2.

And then in the middle we have a lot of things that aren't trending and therefore have mixed returns over both the short and long-term.

In other words, looking at return data from key dates in this format can help highlight the absolute and relative trends we want to be focused on.

In this case, it's confirmed that we're on the right track since we've been buying things in the upper right and selling/avoiding things in the lower left for a while now.

And eventually, when some of these other indexes begin to trend clearly, they'll move away from the messy middle of the chart and to the edges/extremes, which is where we want to focus our attention.

We hope that explanation makes sense. Let us know what you think of these bubble charts and if you want to see more of them in the future.

Thanks for reading.

Allstarcharts Team

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