Monday, March 30, 2009

Sector Update for March 30th

Last week's sector update concluded that "The 800 area poses significant resistance for the S&P 500 Index and this past week's action, as a whole, has done little to reassure us that the recent strong rally was anything more than a countertrend move in a downward market." We did, indeed, surmount that 800 level and remain above it for most of the week, though--as the intraday Twitter posts noted--signs of sector non-participation were present. With Monday's sharp decline, we fell back below that 800 benchmark, with broad market weakness.

For this week's sector update, I contrast each sector's Technical Strength numbers from Friday (first number in series) with the Technical Strength reading as of Monday's close (second number, following the / mark). Recall that sector Technical Strength varies from -500 to +500, with those extremes denoting strong uptrends and downtrends, respectively. A reading below -100 and +100 suggests a non-trending environment, and readings between -100 and -300 and +100 and +300, respectively, indicate moderate levels of trending (i.e., choppy trends).

Here's how we look across the eight S&P 500 sectors that I follow (Friday/Monday):

INDUSTRIAL: +200/+100
ENERGY: +180/-100
FINANCIAL: +60/-120
TECHNOLOGY: +220/+60

What we see is that, even with the rise of last week, the majority of sectors were in uptrends, but not strong ones. This is part of the weakness that I was detecting following the rebound from Wednesday's lows. After Monday, however, almost all of the sectors are in non-trending mode. The strongest of the pack is the defensive Consumer Staples group; note the weakness of Financial shares relative to two weeks ago.

A great deal of press was given to the fact that we had rallied over 20% from the market lows, suggesting that this might constitute the start of a bull market. While the rally has been impressive, I have found market action above the 800 leve in the S&P futures to be less so. Until we are shown otherwise, I am continuing to view this as a broad range market, bound by the early March bear lows and last week's price highs. Against that context, a correction back toward the center of that range is not so unusual, given the lack of sustained buying interest above 800.

As always, I will be tracking Relative Strength by reporting on the trend status of the 40 stocks (five from each of the eight sectors) each morning before the open via Twitter (free subscription here). Also via Twitter, I follow advance-decline statistics from the market's opening price to provide valuable clues as to the strength and weakness of the evolving intraday action; those were invaluable in identifying the market weakness at last week's price peak.