Sunday, April 05, 2009

Sector Update for April 5th

Last week's sector update noted that the majority of the eight S&P 500 sectors that I track weekly were in moderate uptrends by the end of the prior week, but had fallen back to a neutral mode on weakness early this past week. Later in the week, however, we broke above the important 830-area highs in the ES futures, closing above that level, with the late January/early February highs as intermediate-term resistance. Let's take a look at how the sectors' Technical Strength measured up as of Friday's close:

ENERGY: +260

We can see that, with the exception of Health Care, the sectors have moved solidly into uptrending mode, with notable strength among Technology shares. The rebounds in Energy and Materials stocks from their early weak readings were particularly impressive, as was the improvement in Financials.

Note that the defensive sectors that had led during the market decline--Consumer Staples and Health Care--are now relative laggards and risk appetite for growth sectors (Technology) and commodity-related stocks (Materials, Energy) has improved.

Despite the recent strength, these readings are not "overbought"; sector readings can approach their upper bound of +500 in Technical Strength when markets are in strong trending mode to the upside. I will be watching the Financial sector for signs of continued confidence, the Technology sector for continued growth themes, and the commodity-related sectors for bets on economic recovery. These themes help to define sentiment among large traders and portfolio managers.

As always, I will be tracking the 40 stocks that go into my sector ratings each day before the market open via Twitter (free subscription via RSS). I'll also be looking closely in the Twitter posts at signs of continuation or reversal in these sector-based themes.