Sunday, March 01, 2009

Sector Update for March 1st

Last week's sector review concluded, "It is not just the weakness, but the pattern of sector weakness--with relative strength in defensive sectors and relative weakness among economically-sensitive ones--that suggests that we have yet to turn the corner on the bear." That weakness continued through this past week, as the eight S&P 500 sectors that I track regularly displayed sustained weakness in the Technical Strength measure (a quantification of trending behavior).

Here is how the sectors measured up by Friday's close:

MATERIALS: -380 (14%)
INDUSTRIAL: -420 (2%)
ENERGY: -400 (10%)
HEALTH CARE: -500 (6%)
FINANCIAL: -360 (6%)
TECHNOLOGY: -220 (20%)

Recall that Technical Strength for the sectors varies from -500 (very strong short-term downtrend) to +500 (very strong short-term uptrend), with readings between -100 and +100 signifying no meaningful trending. We can see that all of the sectors are in downtrends. The very weak reading among health care issues is particularly notable, as this has been a defensive sector that has outperformed the market in recent weeks. The concerns over reimbursement plans in the proposed budget have taken a toll on that sector, leaving traders and investors with few places to hide.

When we look at a longer time frame, focusing on the percentage of stocks in each sector that are trading above their 20-day moving averages, as reported by Decision Point, we see equal weakness. None of the sectors shows 50% or more of its components above that price benchmark; none are even close.

What makes this market notable is that oversold levels are remaining oversold from week to week, rather than leading to significant rallies. The 785-790 area in the S&P 500 Index (ES) futures represents intermediate-term resistance; as long as we cannot sustain rallies above that level, the market will need to probe lower price levels to find significant buying interest and perceived value.

As always, I will be updating the trend status of stocks in my basket (equally weighted among the eight sectors) each morning before the market open via Twitter (free subscription via RSS). I have found that this is an effective way of tracking day-to-day shifts in the market's trend status.