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
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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3 comments:
It would be great if this could be expanded to include emerging markets and industry groups
It would be great if this could be expanded to include various emerging markets and/or industry groups. while IBD ranks industry groups no one incoporates all of sectors as a whole, industry groups, and emerging markets yet that is the investment choice we have to make.
Can any one point me to TraderFeed blog entry, or if not, explain very succinctly the methodology of the sector strength chart in this blog post.
As the XL-whatevers (IY-whatevers) are based on indices that get adjusted fairly often so as to include the best performing stocks in the sector, do these really work as good estimates of sector strength? For example, the IYR has very strong commercial real estate stocks and doesn't reflect the weakness of the sector.
Are there any more broadly/evenly weighted indices that might be able to give a better take on the technical health of the groups?
Cheers,
Linkster
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