Sunday, March 30, 2008

Stock Sector Strength and Weakness: What It Tells Us About Sentiment

With Friday's weakness, we continue to see deterioration in the Technical Strength measure, which quantifies short-term trending behavior among individual stocks. Here's how Technical Strength is shaping up as a function of S&P 500 sector, combining the ratings from five highly weighted issues within each sector:

Materials: -80
Industrials: -120
Consumer Discretionary: -100
Consumer Staples: +320
Energy: 0
Health Care: -40
Financial: -320
Technology: -180

We once again see Financials as the weakest sector, disappointing given the recent Fed attempts at stablization. The strongest sector by far is Consumer Staples, which suggests a flight to relatively recession-resistant, defensive names. The more growth-oriented technology issues are weak.

If we look on a longer time frame among all S&P 500 stocks within the various sectors, we find that only 12% of Financial issues are trading above their 200-day moving averages and only 22% above their 50-day averages. Conversely, we're seeing 51% of Consumer Staples names trading above their 200-day benchmarks and 67% above their 50-day averages. We're also seeing greater strength among Energy shares (64% above 200-day averages; 47% above 50-day averages) than Technology issues (11% above 200-day averages; 29% above 50-day MAs) or Consumer Discretionary shares (13% above 200-day MA; 28% above 50-day MA).

Defensiveness appears to be the watchword of the day, with investors continuing to shun the Financials and preferring the safety of companies that sell Staples over those relying upon Discretionary spending.


Links to My Money Flow Analyses by Sector