Sunday, March 08, 2009

Sector Update for March 8th

Last week's sector review observed that, "What makes this market notable is that oversold levels are remaining oversold from week to week, rather than leading to significant rallies." That pattern continued this past week, as the oversold sectors remained quite weak, with major averages touching fresh bear market lows.

Here is how Technical Strength (a quantification of short-term trending) shapes up for the eight S&P 500 sectors that I track weekly. Recall that the Technical Strength of sectors varies from -500 (very strong downtrend) to +500 (very strong uptrend), with values between -100 and +100 representing no significant trend:

MATERIALS: -360 (10%)
INDUSTRIAL: -340 (0%)
ENERGY: -320 (8%)
HEALTH CARE: -380 (2%)
FINANCIAL: -420 (4%)
TECHNOLOGY: -300 (17%)

What we see is that weakness is relatively evenly spread across sectors, with only the more defensive Consumer Staples shares showing a bit of relative strength. Financial stocks remain quite weak; they have been the market leaders to the downside for a while now.

In parentheses, we can see the percentage of stocks within each sector that closed on Friday above their 20-day moving averages, as reported by
Decision Point. Once again, we see all sectors are quite weak, with none showing more than half of shares above that benchmark.

These are oversold levels that, in normal market conditions, have led to significant intermediate-term rallies. As I noted recently, however, the market regimes in place since mid-2007 have been anything but normal. Until we can see some improvement in the new high/new low and Demand/Supply numbers (both updated prior to each market open via Twitter; free subscription), it is premature to go bottom fishing. That stance has kept us from fighting the bear for the last few weeks; no doubt at some point we'll get that significant rally. Given the breadth of market weakness, we just don't know at this juncture whether or not any such rally might come from far lower price levels.