Wednesday, January 30, 2008

Continued Technical Strength: Revisiting the Sectors

My Technical Strength measure is a quantification of short-term trending in any stock or index; it assesses both slope and the stock's goodness of fit to that slope. A perfect uptrending stock would merit a reading of +100; a perfect downtrending stock would be -100. A zero score, or a score near zero, would be considered neutral (no trend).

By monitoring Technical Strength across 40 stocks (five highly weighted issues from each of eight S&P sectors), I get a sense for whether the market is picking up or losing strength over time.

At last week's market bottom, we saw only 1 stock in an uptrend and 39 in downtrends, with the 40 stocks providing a Technical Strength Reading below -2300. That means that the average score for each stock was below -55.

At present, we have bounced nicely off the bottom. At Tuesday's close we have 14 stocks displaying technical strength (DOW, BA, AA, UTX, CMCSK, HD, WMT, WAG, AMGN, C, WFC, BAC, JPM, and IBM). Note that three are from the Financial sector that had been among the weakest of the sectors throughout the decline.

We're also seeing 10 stocks in neutral mode: DD, IP, UPS, WY, MO, COP, OXY, LLY, AIG, and MSFT.

That leaves 16 stocks still in downtrends: GE, MMM, TWX, DIS, MCD, PG, KO, XOM, CVX, SLB, PFE, JNJ, MRK, INTC, CSCO, and VZ.

Overall that leaves us with a Technical Strength score of -380, a considerable improvement over the last several trading sessions. That means that the average stock rates above -10, a neutral reading.

The Technical Strength breakdowns by sector are as follows:

Materials: +120
Industrials: -20
Consumer Discretionary: -120
Consumer Staples: -80
Energy: -120
Health Care: -200
Financials: +200
Technology: -160

Note that sectors that had been very weak (Financials and Consumer Discretionary) have strengthened considerably. Areas that had been strong (Health Care, Energy, Technology) are now weaker. Much of the recent strength has also brought a shift of assets among sectors, with the leaders on the downside now outpacing to the upside.

3 comments:

Plan your trades. Trade your plan said...

How do you calculate technical strength ?

Brett Steenbarger, Ph.D. said...

Hi,

Technical Strength is a proprietary measure that assesses a stock's trending. You can think of it as related to the goodness of fit to a regression line.

Brett

Ben Bittrolff said...

Make sure you're sitting down before you fire up these charts.
Really Scary Fed Charts, Why Bernanke Will Cut Furiously

TheFinancialNinja