Sector Update for August 10th

Last week's sector update found that Technical Strength, a short-term measure of trending, was largely bullish among the eight S&P sectors that I follow weekly. It also noted some early signs of toppiness among market indicators. That situation has not changed in the past week, as we saw new price highs in the S&P 500 Index, but divergences among several indicators (such as new highs/lows) and sectors.

Technical Strength varies from a maximum of +500 per sector (strong uptrend) to -500 (strong downtrend), with values between -100 and +100 suggesting no significant directional tendency. Here's how we are looking among the sectors as of Friday's close:

MATERIALS: 400
INDUSTRIAL: 380
CONSUMER DISCRETIONARY: 280
CONSUMER STAPLES: 80
ENERGY: -20
HEALTH CARE: 160
FINANCIAL: 400
TECHNOLOGY: 120

What we see is again a largely bullish scenario, with none of the sectors displaying bearish trending. There is significant sector rotation from last week, with money coming out of the more defensive staples group and going into the economically sensitive materials, industrial, and discretionary sectors. We also saw money coming out of the strong tech group and into the formerly weak financial sector.

I remain alert to the possibility that we're seeing an extended topping process, but I also have to respect the fact that even short-term dips have been seized as buying opportunities by money managers desperate to participate in this rally. This has kept the sectors in bullish mode and prices close to their highs. I will be updating the trend status of my basket of 40 stocks daily via Twitter to track growing strength and weakness among the sectors; you can follow the Twitter stream here.
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