Sector Update for September 13th

Last week's sector review commented that, despite the prior weakness in stocks, none of the sectors were in short-term downtrends. It further observed that the market's pattern of higher highs and higher lows was still intact despite indicator non-confirmations and the possibility that we were seeing an extended topping process.

This past week continued the pattern of higher highs, as the major indexes hit bull market highs and all sectors improved their Technical Strength readings week over week, with the exception of the defensive Consumer Staples shares. All the sectors are trading in short-term uptrends, with the exception of Healthcare stocks, which continue to reflect uncertainty regarding reform efforts.

On the other hand, we're seeing vigorous uptrends for the economically sensitive Energy, Industrial, and Technology sectors. Many of the market's indicators have improved, with the advance-decline lines for the major indexes hitting bull market highs and the number of stocks making new highs steadily expanding. With intermarket, pro-risk themes firmly in place--selling in the U.S. dollar, buying in commodities, strength in bonds--the stock market rally has had a strong underpinning.

Here's how the sectors sorted out this past week. Recall that the proprietary Technical Strength measure varies from +500 (very strong uptrend) to -500 (very strong downtrend), with scores between -100 and +100 denoting no significant directional tendency:

MATERIALS: 240
INDUSTRIAL: 440
CONSUMER DISCRETIONARY: 240
CONSUMER STAPLES: 220
ENERGY: 400
HEALTH CARE: 80
FINANCIAL: 160
TECHNOLOGY: 380

We can see that none of the sectors shows negative readings. Indeed, if you click on the chart above, you can see that sectors, as a whole, have been trading in either bullish or neutral trends over the past several weeks. This is exactly what we would expect in a bull market: consolidations are relatively flat, taking us toward neutral territory, but not sustaining bearish direction.

To keep in touch with shifts in Technical Strength, I post to Twitter (before the market open) the trend status of the 40 stocks in my basket that are equally drawn from the sectors above. This has been quite useful in illustrating the sustained nature of the recent uptrend; you can follow this and other indicators free of charge here.
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