Sunday, February 01, 2009

Sector Update for February 1st

Last week's look at the eight S&P 500 sectors that I track closely with the Technical Strength measure (a metric that quantifies trending behavior on a short time frame) found that all the sectors were displaying either modest or moderate downtrends, with the greatest weakness among financial issues. That same analysis found that only the Energy sector showed more than 50% of its components trading above their 20-day moving averages. The post noted, "Throughout the week for the market overall, 20-day new lows have consistently outnumbered new highs. Unless and until that changes, the intermediate-term trend has to be viewed as bearish."

Interestingly, we did get a spurt of buying during the week that took new 20-day highs above new lows, but by week's end we had reversed and the new lows once again took the lead. That left most of our sectors in downtrending mode on the Technical Strength measure:

MATERIALS: -380 (10%)
INDUSTRIAL: -240 (22%)
ENERGY: -120 (40%)
HEALTH CARE: -200 (59%)
FINANCIAL: -240 (9%)
TECHNOLOGY: -180 (29%)

In parentheses, we can see the percentage of stocks within each sector trading above their 20-day moving averages, as reported by Decision Point. Only Health Care shows more than half of its components trading above that benchmark; note the extreme weakness among Financial, Materials, and Consumer Discretionary shares--all ones that are affected by the current banking crisis and recession. The more defensive sectors--Health Care and Consumer Staples--are showing strength relative to those more economically sensitive sectors.

In short, the new highs/lows, Technical Strength, and themes among sectors continue to reflect bearishness. Unless we can sustain a situation in which new highs outnumber new lows and confidence comes into the Financial, Materials, and Consumer Discretionary sectors, I expect us to be testing recent market lows. As always, Technical Strength for the basket of 40 stocks that I follow, percentages of stocks above their moving averages, and new highs/lows will be updated each morning prior to trading via Twitter (free subscription via RSS).