Sunday, March 15, 2009

Sector Update for March 15th

Last week's sector review found that weakness was evenly spread among sectors, with all showing bearish Technical Strength. With the rally of the past week, however, that situation has changed significantly. Here is how the sectors are looking as of Friday's close. Recall that Technical Strength (a quantification of short-term trending) varies from -500 (strong downtrend) to +500 (strong uptrend), with values between -100 and +100 suggesting no significant trend:

MATERIALS: +100 (66%)
INDUSTRIAL: +80 (33%)
ENERGY: +20 (58%)
HEALTH CARE: +80 (48%)
FINANCIAL: +140 (73%)
TECHNOLOGY: +140 (78%)

We see that all of the sectors have turned around significantly from their lows last week, but none of the sectors are even close to an overbought status. Indeed, the recent rally--strong as it has been--has only been sufficient to move the sectors to neutral status in Technical Strength. Note the especially large turnarounds in the Consumer Discretionary and Financial sectors, as sentiment has shifted from relative risk aversion to risk seeking.

This also suggests that a good part of the recent rally has been short-covering among those beaten down sectors. We will need active, continued buying to move the sectors from neutral to solid uptrending status.

When we look at the percentage of issues in each sector that closed on Friday above their 20-day moving average (in parentheses, as reported by Decision Point), we see that most of the sectors show more than 50% of their components trading above that benchmark. Again, note the considerable bullish swing among Consumer Discretionary and Financial shares; Industrials lag the pack. As long as we see Technical Strength, Demand/Supply, and the percentage of stocks above their 20-day average rising, it is premature to fade market strength.

Readers interested in tracking sector strength and weakness on a daily basis should note the tally of bullish, bearish, and neutral stocks in my S&P 500 basket that is evenly divided among the eight sectors above. I also track the percentage of SPX stocks overall that close above their moving averages. Those measures, and especially the very sensitive Demand/Supply index, caught the turnaround in the market quite nicely this past week. Both measures are posted each morning prior to the market open via Twitter; subscription (RSS) is free of charge, or you can pick up the last five "tweets" on the blog page under "Twitter Trader".