Sunday, April 12, 2009

Sector Update for April 12th

Last week's sector update concluded that the eight major sectors of the S&P 500 that I track had moved solidly into an uptrend mode, with defensive sectors lagging and signs of risk appetite on the rise. With Friday's solid rally, we saw upside breakouts across many sectors, continuing the market uptrend. Here's how Technical Strength (a quantification of short-term trending) looks for the eight sectors as of Friday's close:

MATERIALS: +400
INDUSTRIAL: +340
CONSUMER DISCRETIONARY: +400
CONSUMER STAPLES: +140
ENERGY: +120
HEALTH CARE: -120
FINANCIAL: +460
TECHNOLOGY: +400

Recall that Technical Strength varies from +500 (extreme short-term uptrending) to -500 (extreme short-term downtrending), with values between +100 and -100 suggesting no significant trending. We can see that the Financial sector has been extremely strong, with notable weakness among the defensive Health Care and Consumer Staples issues. Raw Materials are showing strength, as is Technology and Consumer Discretionary shares, suggesting that investors are betting on growth and economic recovery.

As long as pro-risk themes are dominating and the majority of sectors are displaying Technical Strength, it is premature to fade this rally for anything more than a short-term trade. As always, I will be tracking the trending behavior of the 40-stock basket of stocks in my pre-market Twitter posts (free subscription). I'll also be updating market themes in my Twitter posts, most particularly the themes of growth/recovery vs. weakness/recession.
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2 comments:

vasp said...

Hi Dr. Brett, thanks for your insightful posts, you have been an invaluable resource in my trading education and I appreciate your generosity.

Quick question - In your sector technical strength calculation, what lookback period do you use? Also, do you use daily close data or an average of OHLC?

thanks much,

Juan

Brett Steenbarger, Ph.D. said...

Hi Juan,

Technical Strength uses a several day lookback period, comparing today's close to past closes with adjustment for volatility.

Brett