Sunday, January 04, 2009

Sector Update for January 4th

Last week's sector update found continued range bound conditions for the eight S&P 500 sectors that I track with the Technical Strength indicator of short-term trending. With the break above key resistance in the low 900 level on the S&P 500 Index, the Technical Strength readings looked quite different by Friday's close:

MATERIALS: +40 (86%)
INDUSTRIAL: +320 (98%)
ENERGY: +380 (100%)
HEALTH CARE: +460 (95%)
FINANCIAL: +20 (83%)
TECHNOLOGY: +320 (96%)

Clearly the trend has turned up across the sectors, though Materials and Financial shares lag the group. The strong bounce among Technology and Consumer Discretionary shares suggests that recovery themes may be trumping recessionary ones to start 2009.

When we look at the percentage of stocks in each sector trading above their 20-day moving averages, as assessed by Decision Point, we can see the distinct intermediate-term uptrend following the breakout. Even among the two lagging sectors, the great majority of issues are trading above their 20-day averages.

While the sectors are extended relative to those 20-day averages, we are nowhere near overbought with respect to longer-term 50- and 200-day averages. If indeed we have put in an important bottom in November, we should be able to support a rally that would eventually take us into overbought territory on a 200-day basis.

Note that I update Technical Strength figures each morning before trading days via Twitter; RSS subscription to the indicator and link updates is free.