Sector Update for August 1st

The prior sector update found that the market uptrend was healthy, with sectors showing positive Technical Strength and indicators in bullish unison: "It would not be surprising for traders and investors to use pullbacks in Technical Strength as buying opportunities, given the increasingly common belief that the S&P 500 Index will vault above 1000 before there is any correction of significance." Indeed, we approached the 1000 area before seeing selling enter the market late in the week.

As we can see above, Technical Strength for the eight S&P sectors that I follow weekly remains largely bullish, with Consumer Discretionary and Energy shares in neutral territory. Recall that Technical Strength is a proprietary measure of short-term trending; sector readings of +300 to +500 suggest significant uptrending; -300 to -500 indicates significant downtrending. Readings between -100 and +100 suggest that a sector is not trending in a meaningful way.

Here's how the sectors are looking as of Friday's close:

MATERIALS: 320
INDUSTRIAL: 280
CONSUMER DISCRETIONARY: 40
CONSUMER STAPLES: 280
ENERGY: -20
HEALTH CARE: 280
FINANCIAL: 180
TECHNOLOGY: 320

While the market overall was hitting new high prices during the week, the relative weakness of economically sensitive Discretionary and Energy shares is of some concern. I also note that new 20- and 65-day highs, while still outpacing new lows, remain below their July 23rd levels. All of this suggests to me that we could be seeing the start of topping action as prices approach that 1000 level in the S&P 500 Index. I will be updating indicators daily via Twitter to see if we can sustain recent market strength (follow here). If we do, indeed, see a market topping, we should begin to fall off in both Technical Strength and Demand/Supply readings.
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