Sunday, June 07, 2009

Sector Update for June 7th


Last week's sector review concluded that "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."

As we can see from the chart above, the eight S&P 500 sectors that I track weekly indeed fared well this past week in their Technical Strength (short-term trending), with all of them displaying bullish trends to one degree or another. We hit new price highs on Friday for the major stock market averages before pulling back. Although those new highs were not accompanied by an expansion of stocks registering fresh 20-day highs--something I'll illustrate shortly in my indicator update--their pullback did not take us out of a bullish trending mode.

Recall that sector Technical Strength varies from +500 (strong uptrend) to -500 (strong downtrend), with -100 to +100 suggesting no significant directional tendency. Here's how the sectors looked as of Friday's close:

MATERIALS: +240
INDUSTRIAL: +340
CONSUMER DISCRETIONARY: +260
CONSUMER STAPLES: +320
ENERGY: +300
HEALTH CARE: +160
FINANCIAL: +140
TECHNOLOGY: +280

What we see is that industrial and consumer-related shares gained strength during the week, reflecting raised hopes regarding economic recovery. As long as we stay above the May highs across the major indexes, we have to respect the break out of the May range and the bullish sector readings. Should we move back into that range, particularly on the heels of rising interest rates and a flattening yield curve, I would revise this view.
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