Friday, February 22, 2008

Technical Strength: Stock SectorTrends in a Range Bound Market

* Range Market - The ES futures have been frustrating both bears and bulls, even as they've been offering nice swings for the daytraders. Interestingly, although we saw weakness in Thursday's trade, we had more stocks register new 20-day highs (848) and fewer register new lows (736) than the day prior. Below I'll take a look at where the strength and weakness can be found within the S&P 500 sectors, and a full indicator review will appear this weekend.

* On the Fence - Out of the 40 stocks from eight sectors that I track, 17 qualify as neutral in Technical Strength, an unusually high number. A total of 13 closed with technical strength on Thursday (uptrend) and 10 closed weak (downtrend). I like to track the neutral stocks, because they often tip their hands as to the ultimate direction of a breakout move. The 17 are: DOW, WY, BA, MMM, TWX, DIS, MCD, PG, WMT, JNJ, LLY, AMGN, BAC, JPM, MSFT, INTC, CSCO. Note that four of those names are prominent NASDAQ 100 stocks. That has me tracking the NQ for signs that the market might be getting off its fence.

* Sector Strength and Weakness - Here's how the sectors sort out with respect to Technical Strength and (in parentheses) the percentage of stocks within the sector closing above their 50-day moving averages:

* Materials (XLB): +120 (54%)
* Industrials (XLI): -40 (34%)
* Consumer Discretionary (XLY): +80 (31%)
* Consumer Staples (XLP): -100 (28%)
* Energy (XLE): +200 (72%)
* Health Care (XLV): -180 (29%)
* Financial (XLF): -60 (20%)
* Technology (XLK): -80 (21%)

The sectors most directly connected to the commodities boom are strongest; health care is weak, perhaps in response to the perception that a Democrat may be in the White House next term.

* Not Monolithic - The financial sector is really the wild card here. Some of the stocks that I track (WFC, BAC, JPM) are notably stronger than others (C, AIG, GS, FNM). Overall, I don't like the technical strength picture for the major investment banks, and that's a concern given recent credit fears. All the Fed measures to date, fiscal stimulus, and all the sovereign bank buying have not buoyed these shares, as we can see by the low proportion of XLF stocks trading above their 50-day moving averages (above).


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