Monday, February 01, 2010

Morning Briefing for February 1st: Watching Sector Leaders and Laggards

9:48 AM CT - I've added the chart of the Russell 2000 Index (IWM) to show how we've bounced with the market strength this morning, but so far are not vigorously rejecting last week's price lows. Moreover, from the market open, we see the Russell modestly underperforming the larger cap stock indexes. I would prefer to see strength among small caps and money flowing into growth issues if we're to sustain a rally; otherwise, this looks like a nice bounce in a downtrend.

My recent indicator review found that we were seeing relative weakness among Technology shares and relative strength among Consumer Staples issues. For that reason, the tech-laden NASDAQ 100 Index (above) has been lagging the broad stock market. This is not an unusual pattern during periods of market weakness: more defensive, recession-resistant stocks outperform more growth-oriented issues.

We can see that, so far this morning, that pattern has not changed. The NQ futures (above) have made only a dead cat bounce from their Friday lows. I will be watching to see if NQ can take out its overnight highs and gain some upside traction as one possible tell for a bull rebound. If we don't see such a bounce, I'd expect at least a test of the Friday lows.

Often, it's not just the strength or weakness in the market, but the specific patterns of strength and weakness that provide useful information to the intraday trader.