Sunday, May 31, 2009

Sector Update for May 31st

Last week's sector update concluded that most of the eight S&P sectors that I track weekly were lodged in a multi-week trading range, with neutral Technical Strength. With Friday's late rally, we returned toward the high end of the month-long trading range, and many of the sectors displayed a resumption of their bullish trend.

Recall that Technical Strength for each of the sectors varies between +500 (strong uptrend) and -500 (strong downtrend), with values between -100 and +100 suggesting no significant trend. Here's how the sectors shaped up after Friday's close:

ENERGY: +360

We can see that, with the surge in commodity prices--particularly oil--energy stocks were quite strong on the week, with significant week-over-week strength among materials and technology shares as well. As I noted recently, consumer discretionary and financial shares are lagging to some degree and have yet to better their early May highs.

Indeed, most of the sectors showed greater strength during the week of May 8th than most recently; how we follow through on Friday's strength early this coming week will tell us a great deal as to whether we're on the threshold of a new bull leg or setting up unconfirmed new highs that will be at risk of reversal.

I will be paying particular attention to new 20-day highs vs. lows, and will be posting those to Twitter before each market open (follow here). We should see significant expansion of new highs if this is going to bring a new bull leg; absent that expansion--and we haven't seen it yet--I will continue to treat this as a wide range market defined by the highs and lows of the past several weeks.