Tuesday, April 29, 2008

Thematic Shifts Among Stock Market Sectors

Going into tomorrow's Fed announcement, we've seen significant changes in sector themes. Many of the sectors that were most beaten down during the market's selloff are now performing well. Interestingly, this has occurred at the same time that Treasuries--which had been strong during the selloff with the flight to quality--have sold off. It appears that we have been making a gradual shift toward risk-taking among stocks. This has helped the consumer discretionary, financial, and technology stocks in particular.

Below are the eight S&P 500 sectors that I track closely, along with their Technical Strength reading (a measure of short-to-intermediate term trending) and the percentage of stocks within the sector trading above their 50-day moving averages:

Materials (XLB): -60 (54%)
Industrials (XLI): +140 (77%)
Consumer Discretionary (XLY): +360 (70%)
Consumer Staples (XLP): -120 (59%)
Energy (XLE): +240 (81%)
Health Care (XLV): -200 (51%)
Financial (XLF): +220 (65%)
Technology (XLK): +260 (70%)

Some of the sectors that had been strongest during the market weakness (Consumer Staples, Materials) have been weak of late. Consumer Discretionary shares, which had suffered with recession fears, have bounced back dramatically.

I will be watching to see how the Fed meeting affects these potentially important thematic shifts.


Sector Money Flows


lelio said...

hi, I have purchased all of your books and admire you work very much. I have a question, what do you mean that traders enter trades at random? do you mean that they dont have any risk reward idea, no stop losses??

if you can, let me know

Brett Steenbarger, Ph.D. said...

Hi Lelio,

When I say that many traders trade randomness, I mean that there is no significant directional tendency associated with their entry criteria. They are trading patterns that, if tested historically, would not show favorable returns.