Sunday, April 26, 2009

Sector Update for April 26th

Last week's sector review suggested that the eight S&P 500 sectors that I track weekly remained bullish overall, though their ascent seemed to be slowing. In action that became quite choppy at times, we did indeed see continued strength last week, with several indexes making fresh bull market highs. Here's how the sectors look with respect to Technical Strength, a proprietary short-term measure of trending:

ENERGY: +100

What we see is that five of the eight sectors (see chart above) actually lost Technical Strength. Although we saw generally higher prices over the week, much of the movement can be attributed to continued strength in Materials and Industrial stocks. Fully three of the eight sectors are in a non-trending mode, with the two consumer-related sectors showing particular drops in their strength.

The defensive Consumer Staples and Health Care sectors continue to bring up the rear in strength; note the sizable drop among Financial shares in the wake of the Fed's release of its stress test methods.

As a rule, markets tend to continue their climb when the great majority of their components are participating in the strength. As bull moves age, weaker sectors begin to drop out and the market moves higher from a narrower base. We're seeing a narrowing of that base at present, and that leads me to believe that we're more vulnerable to a correction than we've been in the prior several weeks, when the rising tide was lifting most boats.