Monday, December 24, 2007

What's Strong, What's Weak: A Look at Stock Sectors

* Neutral Reading on Technical Strength - My basket of 40 stocks is showing 14 issues with technical strength (a quantitative measure of trending), 14 neutral, and 12 weak. The Technical Strength Index now reads +420 following Friday's rise. While this is a jump from readings earlier in the month, it suggests that the majority of stocks are not yet trading in short-term uptrends. I will be watching the neutral issues carefully to see if the upmove broadens out. These neutral issues include IP, GE, UPS, MMM, DIS, WMT, KO, SLB, MRK, LLY, AIG, JPM, and VZ.

* Sector Strength and Weakness - Here's how the Technical Strength scores look on a sector-by-sector basis:

Materials: -20
Industrials: +40
Consumer Discretionary: -80
Consumer Staples: +220
Energy: +280
Health Care: -40
Financial: -240
Technology: +260

Note how strength is limited thus far to three of the sectors. The weakness among Financials is notable given the attention given to this sector, with central bank interventions and bailouts from sovereign wealth funds.

* Yet Another Measure of Sector Strength - We now have 50% of S&P 500 stocks trading above their 50-day moving averages. That is up from 20% in late November. Here is how the percentage of stocks trading above their 50-day moving averages breaks down by sector:

Materials: 52%
Industrials: 56%
Consumer Discretionary: 29%
Consumer Staples: 67%
Energy: 85%
Health Care: 62%
Financial: 29%
Technology: 45%

Recession-resistant sectors (consumer staples and health care) show greater strength, along with energy. Sectors affected by the credit and housing crises (consumer discretionary and financial) continue to show greatest weakness. This is far from a monolithic market.

* Pocket of Strength - The Trading Psychology Weblog update and my latest post to the Trader Performance page illustrate why I was less than overwhelmed with Friday's rise. Still, the interest in small caps was impressive. We registered 32 new 52-week highs among S&P 600 small cap issues on Friday, the highest in a couple of months. Overall, however, we continue to see declining new highs from October to November to December across the major sectors and markets.


Mid-Week Sector Strength Readings


Anatrader said...

Merry X'mas, Brett & All Readers

It is already X'mas Day in the East and looking back, I wish to show apparent strength in prices might not mean an instrument is strong.

Take the case of AUDUSD on X'mas Eve:

This is a post I made to my STC/Club members, reproduced hereunder:

AUDUSD - false breakout on X'mas Eve

Without access to Volumes, and just looking at the Daily Chart on AUDUSD, there appeared to be a Breakout when prices went beyond 0.8700.

However, a quick check on the Volumes chart indicated Volume was excessively below normal, ie about -1.5 Mean, and the 'rally' was due to short-covering. Obviously, these were some field days for scalpers!

So I am still hanging in there....

Good Trading

We may still see a Santa Claus rally when 2008 is ushered in.

Gary said...

Hi Brett,

Would appreciate if you could answer a few questions.

When you mention looking at current volume based on "past" volume, may i ask how would you define past volume and how many days would you take the average?

If you trade nikkeii 225 futures, may i ask if the price is a representative of the nikkei index?

Thanks so much !!!

Brett Steenbarger, Ph.D. said...

Hi Gary,

I generally compare current volume to the median for the prior 20 day period. Sorry, I don't trade Nikkei, so can't offer many insights there. Thanks--