Sunday, January 25, 2009

Sector Update for January 25th

Last week's sector update found that the eight S&P 500 sectors that I follow closely for Technical Strength had largely moved into downtrends, with relative strength among defensive sectors and relative weakness among financial shares. That weakness spilled over to the past week during volatile and choppy trading. Here's how we look as of Friday's market close:

MATERIALS: -280 (17%)
INDUSTRIAL: -340 (8%)
CONSUMER DISCRETIONARY: -120 (16%)
CONSUMER STAPLES: -100 (40%)
ENERGY: -180 (58%)
HEALTH CARE: -160 (44%)
FINANCIAL: -380 (7%)
TECHNOLOGY: -100 (43%)

Recall that Technical Strength scores each stock on a scale of -100 (very strong downtrend) to +100 (very strong uptrend), with zero signifying no trending. The metric is similar to the slope of a goodness-of-fit regression line. I take five highly weighted stocks from each sector and add their scores together to arrive at an estimate for each sector. The resulting view of short-term trending suggests that the market remains in a downtrend mode, with financial and industrial stocks weakest.

Interestingly, economically sensitive technology and consumer discretionary sectors are displaying relative strength, along with the more defensive consumer staples and health care shares. Looking at a longer time frame with data from Decision Point, we can see the percentage of stocks in each sector trading above their 20-day moving averages (in parentheses above). The data show considerable weakness among economically sensitive consumer discretionary, materials, and industrial shares, as well as particular weakness among financial stocks. Energy stocks are notably strong, reflecting some recent upward movement in gasoline prices, and technology shares have displayed relative strength.

In all, only the energy sector shows a plurality of stocks trading above their 20-day moving averages. Throughout the week for the market overall, 20-day new lows have consistently outnumbered new highs. Unless and until that changes, the intermediate-term trend has to be viewed as bearish. As always, I will be staying on top of trend shifts by updating new highs/lows and Technical Strength before each market open via Twitter (free RSS subscription).
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