Wednesday, July 30, 2008

A Glance At A Mixed Market

Recall that my Technical Strength measure is a way of quantifying the trending behavior of a stock or index. I follow a basket of 40 stocks, which consists of five highly-weighted issues within each of eight S&P 500 sectors. I sum up the Technical Strength readings for each grouping of five stocks to arrive at a general strength/weakness score for each sector.

Interestingly, after Monday's drop and Tuesday's rise, we have 13 of the stocks in the basket trading in uptrends, 14 neutral, and 13 in downtrends. This suggests an environment of sector rotation, rather than one of general trending.

Here are the most recent Technical Strength readings by sector:

MATERIALS (XLB): -100
INDUSTRIALS (XLI): +40
CONSUMER DISCRETIONARY (XLY): +20
CONSUMER STAPLES (XLP): +120
ENERGY (XLE): -360
HEALTH CARE (XLV): +120
FINANCIAL (XLF): +20
TECHNOLOGY (XLK): -40

Weakness in the commodity-related sectors, Materials and Energy, is evident. The two strongest sectors are among the most recession-resistant: Consumer Staples and Health Care. Everything else is not in a trending mode, as the very recessionary themes that are weighing on commodities are also making it difficult to sustain a broad stock market rally. I will be watching the sector ETFs for evidence of breakout moves; those will likely point the direction for the general market.
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2 comments:

GS751 said...

funny how my eyes went straight to the financials number and then to energy.... Maybe I have been watching CNBC too much. lol. I think over the next year or two the commodities and currencies are going to have a huge effect on the SPY. Also I think that healthcare is a hard sector to analyze because of the election...

Brett Steenbarger, Ph.D. said...

Yes, we're seeing a tug of war between recessionary views and inflationary ones. Getting that call right will be key to succeeding across many markets--

Brett