Saturday, July 19, 2008

Plenty of Stock Sector Rotation

With the stock market's vigorous bounce during the latter portion of the week, the technical strength of the S&P 500 sectors that I follow has improved significantly. The data below are taken from eight different sectors, summarizing the short-term technical strength (a quantified measure of trending behavior) of five highly weighted stocks within each sector.

MATERIALS: +60
INDUSTRIAL: +100
CONSUMER DISCRETIONARY: +240
CONSUMER STAPLES: -60
ENERGY: -400
HEALTH CARE: +180
FINANCIAL: +140
TECHNOLOGY: -20

What is clear is the massive sector rotation that has occurred in recent days. Energy stocks are now solidly in downtrends, while the former leaders to the downside--financial and consumer discretionary issues--have turned around significantly.

Here are the percentage of stocks within each sector currently trading above their 50-day moving averages, providing us with a longer-term perspective on relative strength. Once again we can see the surprising weakness of the energy stocks:

MATERIALS: 24%
INDUSTRIAL: 31%
CONSUMER DISCRETIONARY: 23%
CONSUMER STAPLES: 39%
ENERGY: 3%
HEALTH CARE: 58%
FINANCIAL: 27%
TECHNOLOGY: 34%
.

4 comments:

Mark Wolfinger said...

If this is a short-lived vigorous bear-market rally (and I have no idea if it is) how does the trader not get trapped by this data?

In other words, how are you suggesting traders use this information?

Thank you

Brett Steenbarger, Ph.D. said...

Hi Mark,

As a short-term (intraday) trader, I'm looking at the themes dominating the current market and using those to gauge the current day's action. Tracking themes in energy, consumer discretionaries, and financials has been very helpful for daytraders.

Brett

Red Hue said...

Mark,

If I may...I use "themes" like this as a jumping in point...but to manage risk I dont jump all in...rather I divide my powder reserve into a few units and gradually find spots to climb on new trends. If they do not emerge as expected...I usually am only in a unit or two and dont get hurt bad...when they are the start of a new trend I am in early and can hold on. You have to risk though if you are to earn.

Tim said...

Terrific data and insight Brett. Can you share where you derive this data? I'd like to incorporate it into my trading strategy. Thank you.