Sector Update for November 1st

With the market's sharp bounce this past week, I thought I'd take a fresh look at the major S&P 500 sectors and their trending behavior. The basket of stocks that I follow include five highly weighted issues from each of eight sectors. I use a measure that I call Technical Strength as a way of quantifying trending behavior; it is somewhat akin to the slope of a goodness of fit regression line. Ratings near zero suggest no trend; a perfect uptrend would be scored +100, and a perfect downtrend receives a -100. Since I sum the scores of the five stocks for each sector to derive a trend rating for that sector, a maximum (perfect uptrending) score would be +500; a minimum (perfect downtrending) score would be -500; and a neutral score would be between -100 and +100.

For the week ended 10/31/08, we had 23 stocks in the basket trading in uptrends, 5 neutral, and 12 in downtrends. This is a marked improvement from last week, when--at one point--all 40 stocks traded in downtrends.

Here are the summed ratings by sector:

MATERIALS: -180
INDUSTRIAL: +120
CONSUMER DISCRETIONARY: +200
CONSUMER STAPLES: +40
ENERGY: 0
HEALTH CARE: +60
FINANCIAL: -20
TECHNOLOGY: +20

What we can see is that most the sectors are trading in a relatively neutral mode. Consumer discretionary shares, which had been among the most beaten down during the decline, have rebounded relatively well during the past week. Materials stocks continue a bit weaker than the other sectors, reflecting continued recessionary concerns. I will be tracking these numbers closely to see if we can break out of the neutral status to the upside, or if the recent strength is only part of a larger and longer bottoming process for this market.
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