Sector Update for May 10th

Last week's sector update concluded that "As long as markets are rewarding growth themes and sectors, corrections are apt to be relatively shallow, featuring sector rotation rather than broad-based sector decline." We did indeed continue to see shallow corrective movements during the week, as averages moved to fresh bull swing highs. Indicators such as the number of stocks registering fresh 65-day highs and the Advance-Decline line specific to NYSE common stocks also made new highs this past week, suggesting that the bull has remained surprisingly strong since its March lows.

As we view Technical Strength (a proprietary measure of short-term trending; above), we see that, although the growth-oriented Technology stocks lost strength, this was more than balanced by strength among Financial, Industrial, and Energy shares. As we can see from the breakdown below, the majority of sectors are trading with a short-term bullish bias:

MATERIALS: +300
INDUSTRIAL: +480
CONSUMER DISCRETIONARY: +300
CONSUMER STAPLES: +180
ENERGY: +440
HEALTH CARE: +260
FINANCIAL: +480
TECHNOLOGY: -120

Once again, the picture is one more of sector rotation than outright sector weakness. So far, Technical Strength has done a good job of keeping swing traders on the right side of this market. I will need to see the weakness among Technology shares spread to other growth-oriented sectors before concluding that the bull is ready to roll over in any meaningful way. As always, I will be tracking the major indicators--including the trending behavior of the 40 stocks in my portfolio (five highly weighted issues from each of the eight sectors above)--each day prior to the market open via Twitter (follow the Twitter feed here).
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