Sunday, May 10, 2009

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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2 comments:

GS751 said...

Is anybody else feeling the lack of dispersion in this market?

OKL said...

Aside from the weakness in tech the last week, which I attribute to gyration around the 200sma line, there is also notable strength in the traditionally defensive sectors; XLU XLP XLV.

On a daily chart basis, the same 'breakout theory' applies; 1) expanded volume, 2) re-evaluation in other markets, 3) leading sectors leading, 4) sectors and inter-index 'all go'.

Since the market's getting close to a breaking point close to the 200sma across the markets (almost all other markets; Euro, Yen, Treasuries, Gold, Oil are closing in on their 200smas)... as always, there are 3 possibilities; Breakout, Consolidation, Reversal.

I await with keen interest.

That's my trading view; my investment/economic view is that... Inflation is not the same as Investment.

If Gold starts moving in synchrony with equities, then there is clearly more faith in Inflation than Investment, which would once again signal the unsustainable nature of the rally- irregardless of its length, as already depicted in the past 15 years.