Tuesday, April 08, 2008

A Quick Look at Technical Strength

The stock market's rally has stalled out as we've approached the resistance area emphasized in the most recent indicator update. Short-term momentum has turned negative, with Demand (an index of stocks closing above the volatility envelopes surrounding their moving averages) finishing Tuesday at 21 and Supply (an index of those closing below their envelopes) at 81. Stocks making fresh 20-day highs dropped to 706; new lows were 236. By contrast, we were seeing over 1900 fresh 20-day highs at the middle of last week.

So which sectors are strong and weak in technical strength? My measure of short-term trending across 40 stocks (five from eight S&P 500 sectors) looks like this:

Materials: +240
Industrials: +60
Consumer Discretionary: +140
Consumer Staples: +200
Energy: +360
Health Care: +40
Financial: +40
Technology: -80

Once again, those commodities/weak dollar themes of Materials and Energy continue to lead the stock market, whereas growth themes (Technology, Discretionary) somewhat underperform defensive themes (Staples). I find the lack of follow-through in relative strength among the Financials particularly concerning and strongly suspect that, if we're going to sustain a break above the 1400 SPX resistance, the strength will need to come from confidence among those Financial shares.