Sector Update for July 5th

Last week's sector review indicated that we were in a corrective mode, in which stocks were trading within a broad trading range defined by the May price lows and June highs. After failing to sustain a rally to new highs, the market fell on weak economic news this past week. This has us coming close to probing the lows of the trading range.

Above we see the Technical Strength readings for the eight S&P 500 sectors that I follow weekly. Recall that Technical Strength is a proprietary, quantitative measure of short-term trending that varies from +500 (strong uptrend) to -500 (strong downtrend) for each sector. Readings between -100 and +100 signify no significant directional trend for the sector.

We can see that the majority of sectors are displaying downtrends, with the exception of the neutral status for Health Care and Technology sectors. Note the particular weakening of the Financial sector. Here are how the sectors line up as of the close of the holiday-shortened week:

MATERIALS: -140
INDUSTRIAL: -140
CONSUMER DISCRETIONARY: -160
CONSUMER STAPLES: -220
ENERGY: -240
HEALTH CARE: +60
FINANCIAL: -280
TECHNOLOGY: +60

I continue to view this as a corrective movement within a bull market and a broad range bound market. Having failed to reach the range highs and significantly weakened thereafter, the market appears poised to test its range lows; I would not be surprised to see us take out those lows--particularly if new 20-day lows among stocks continue to outnumber fresh 20-day highs. I will be tracking market indicators closely and posting them before the open via Twitter; those will help us determine whether we ultimately trade back into the two-month range or start a more significant bear leg/correction.
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