Sunday, August 17, 2008

Stock Market Sectors: A Look at Relative Strength and Weakness

A look at the 40 stocks across eight S&P 500 sectors that I track in a basket shows a continued picture of Technical Strength: 27 are in uptrends, 5 are neutral, and 8 are in downtrends. Of those in downtrends, half are energy issues and another two are financial stocks. Here's how Technical Strength shapes up, sector by sector, followed (in parentheses) by the percentage of stocks within the sector that are trading above their 50-day moving averages:

MATERIALS: +220 (52%)
INDUSTRIAL: +240 (65%)
CONSUMER DISCRETIONARY: +360 (82%)
CONSUMER STAPLES: +380 (83%)
ENERGY: -280 (3%)
HEALTH CARE: +360 (94%)
FINANCIAL: -140 (55%)
TECHNOLOGY: +220 (76%)

What we can see is that consumer-related issues--particularly the consumer discretionary stocks--have rebounded nicely from their July lows and quite a few sectors are behaving well. The notable laggard is the sector that held up the best during the decline: energy. Lower commodity prices can only be a positive for the consumer; that's a relationship worth tracking going forward.

Meanwhile, the other notable laggard in short-term Technical Strength are the financial shares. Their lagging strength suggests that traders and investors are not yet seeing that the coast is clear with respect to credit-related problems, and that offers a cautionary element to the recent market strength.
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