Indicator Review for May 12th

My Technical Strength measure is a quantification of trending behavior over an intermediate-term time frame. The measure tracks five highly weighted stocks within eight different S&P 500 sectors. Scores range from -500 (near perfect downtrending) to +500 (near perfect uptrending), with scores near zero suggesting the absence of trending.

Here are the sector scores as of Friday:

Materials: +20
Industrials: -180
Consumer Discretionary: +200
Consumer Staples: -220
Energy: +300
Health Care: -280
Financial: -260
Technology: +220

What stands out is that we have sectors moving in very different directions. Beneath the action of the broad index is considerable sector rotation, as noted in a recent post. Although we've recently moved to price highs following the March lows, a limited number of sectors have accounted for essentially all the strength. That is not a healthy market situation and helps to explain why broad buying sentiment has been lagging.

It is this very mixed sector performance that also helps explain why the advance-decline line specific to NYSE common stocks, as nicely illustrated by Decision Point in the above chart, has been lagging. While the S&P 500 Index has vaulted above its February highs, the broad advance-decline line remains significantly lower. Moreover, as stocks moved to new price highs early this past week, the AD Line failed to follow.

Indeed, when we look at advance-decline lines specific to each of the above S&P 500 sectors, we can see a similar pattern of mixed performance. The line specific to energy stocks is hovering at its April highs, which are also all-time highs. The line for consumer staples stocks, however, hit a new bear low this past week. We are very close to bear lows for financial and health care stocks, but technology shares remain well above their bear lows (though nowhere near their bull highs).

Finally, the broad stock market indexes are nicely higher over the past month, but Friday's market showed 797 new 20-day highs and 747 fresh 20-day lows--more mixed performance. I cannot imagine the market sustaining a significant bull move on such a selective basis.

RELEVANT POST:

Last Week's Indicator Review
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