Sunday, May 31, 2009

Sector Update for May 31st

Last week's sector update concluded that most of the eight S&P sectors that I track weekly were lodged in a multi-week trading range, with neutral Technical Strength. With Friday's late rally, we returned toward the high end of the month-long trading range, and many of the sectors displayed a resumption of their bullish trend.

Recall that Technical Strength for each of the sectors varies between +500 (strong uptrend) and -500 (strong downtrend), with values between -100 and +100 suggesting no significant trend. Here's how the sectors shaped up after Friday's close:

ENERGY: +360

We can see that, with the surge in commodity prices--particularly oil--energy stocks were quite strong on the week, with significant week-over-week strength among materials and technology shares as well. As I noted recently, consumer discretionary and financial shares are lagging to some degree and have yet to better their early May highs.

Indeed, most of the sectors showed greater strength during the week of May 8th than most recently; how we follow through on Friday's strength early this coming week will tell us a great deal as to whether we're on the threshold of a new bull leg or setting up unconfirmed new highs that will be at risk of reversal.

I will be paying particular attention to new 20-day highs vs. lows, and will be posting those to Twitter before each market open (follow here). We should see significant expansion of new highs if this is going to bring a new bull leg; absent that expansion--and we haven't seen it yet--I will continue to treat this as a wide range market defined by the highs and lows of the past several weeks.


Phoevos said...

I had been convinced that a reversal was forthcoming, but's hard to ignore the bullish bias.

GS751 said...

I think many people are sick of the lack of direction in this market. There has been this trade that a lot of people have piled into in the /ES imho short @ 920 - 925 and long @ 875 / 880. Lets see if that holds.

plumjohn said...

Dr. Brett,

What did you make of the late surg in the market on Friday. Close to a 2% move in 15min.
Do you find yourself ignoring this type of action given that it was the last day of the window dressing?

S Benard said...

The fact that materials continue to be the sector of steady strength, while others continue to lag and sputter, suggests to me that it is more a bet on inflation... than economic growth. Recent retail sales figures suggest that improvement was due to savings from lower fuel prices. Now that crude has rebounded, retail sales and consumer spending will likely be dampened again.

Investors are trying to protect against the downside risk with hard assets. Crude oil has nearly doubled in price from its low around $35/barrel a few months ago. Grains have risen 40-60% in the same period. Gold is up $100/oz. in the past month. Meanwhile, the Dollar is getting pummeled.

I'm betting on more inflation, but unlike what government policies want, I'm betting that it will be in commodities, NOT housing and stocks. That's how I read Friday's rally that was centered in the materials sector.

EnglishTeach said...

I'm curious about your thoughts on the incredible increase in volume on DBC over the last three to four months (looking at one or two year charts). (Best analogy I can think of is the grass in my front lawn that needs cutting--ha!)

Seriously, I've been a reader for a few years and respect your opinion.

I'm wondering if it's simply the popularity of the "relatively" new commodities ETF. The volume for SPY and QQQQ are not following the DBC higher.

Thanks for a great blog.