Sunday, November 08, 2009

Sector Update for November 8th

Last week's sector review noted deterioration in the Technical Strength of the sectors, but viewed the action as an interruption of a bull market rather than the start of a fresh bear. After weakness early this past week, stocks rallied into week's end, taking us back toward the bull highs. As we can see above, none of the sectors is showing a strong bullish trend as of Friday's close, but five of the eight are in bullish short-term trending mode, two are neutral, and one is bearish.

(Note that Technical Strength by sector varies from a very bullish +500 to a very bearish -500, with scores between -100 and +100 showing no significant directional tendency).

Here is how the sectors look as of Friday's close:


We can see that the consumer-related sectors made strong week-over-week gains in Technical Strength, as did Materials and Industrial shares. Financial stocks remain the relative strength laggards, participating poorly in the late week rally.

I am watching the 1064 area closely, as that represents prior resistance from the sessions at the end of October. We broke above that level in Friday's trade, and I'm looking to see validation of that breakout early this coming week. If we get that, particularly with solid upside breadth, a test of the bull highs should be in the cards.

The uneven nature of participation in the late week rally, however, leads me to question whether we will sustain that breakout. I am uncomfortable with the weakness among sectors that, thus far, have led the rally since March--including small caps and financial issues. I'm also concerned that, even after last week's bounce, we're still seeing more 20-day lows than highs among NYSE, NASDAQ, and ASE shares.

Failure to sustain the move above 1064 would lead me to look for a retest of last week's lows, but would also invite perceptions of a longer-term head-and-shoulders topping pattern dating back to the September momentum highs. This latter scenario would suggest a break below those lows from last week and is one reason I am defensive here.

1 comment:

Matt Fahmie said...

I believe a more significant level to pay attention to is 1070.25. It is the week of 10/23/09 weekly low. A move above this level would be an acceptance back within the prior 5 day balance starting on 10/23/09 and breaking down starting 10/30/09. This weeks structural high volume node is 1056 with a second high volume node below it at 1038. A move above 1070.25, probability would favor a test of 1098.50 with potential stopping points at 86 and 94. A move below 1056 would favor a test of the high volume node of 1038 with potential stopping points at 45 and 41. Friday's action failed to show any directional conviction or ability to extend the range on either side of the initial balance. The value area continued to contract showing a decrease in trade facilitation at higher prices. The action during the prior three days is on relatively weak volume relative to prior down days and seems very mechanical. Considering the lack of conviction and initiation given Friday's action, a move above or below Friday's high/low on strong relative volume could be inferred as the initiative and thus the stronger activity. I will wait for the market to provide me direction and go with that initiative activity; whichever side it decides to occur.