Sunday, June 21, 2009

Sector Update for June 21st

Last week's sector review concluded that, despite a closing high in the S&P 500 Index, many sectors were not participating in the strength, making it difficult to justify chasing strength. That view turned out to be helpful, as we pulled back sharply last week and moved back into May's trading range. As we can see above, most of the sectors lost Technical Strength (a short-term measure of trending) last week; only the relatively defensive Consumer Staples and Health Care sectors showed signs of buying week over week. With the pullback in commodities, the Materials and Energy sectors turned bearish; we also saw fresh bearish readings among economically sensitive Industrial and Consumer Discretionary shares.

Here is how the sectors lined up as of Friday's close:

ENERGY: -200

Recall that Technical Strength by sector varies from +500 (strong uptrend) to -500 (strong downtrend), with values between -100 and +100 signifying no meaningful directional tendency. Several of the sectors are in neutral trending mode; the others are not showing strong downtrends at this time. For now I'm viewing us in a corrective mode within a broad trading range defined by the May lows and the June highs. Given June's extended topping, I would not be surprised to see us test those May lows going forward. I will be tracking relative sector performance--defensive vs. growth sectors--to gauge sentiment and the likelihood of retracing the late May/early June strength.

Per usual, I will be updating the indicators, including trending behavior across my basket of 40 stocks taken from the above sectors, via Twitter (follow here).