Sunday, August 30, 2009

Sector Update for August 30th


Last week's sector update emphasized the short-term trending strength across all sectors, but also noted divergences with respect to the number of stocks registering new highs. I expected that divergence to be resolved one way or another this past week, but the situation is very much the same: Technical Strength (a proprietary short-term measure of trending) remains positive across sectors, but the market's strength is built upon a narrowing base.

As we can see from the chart above, all eight major S&P 500 sectors that I follow are trading in short-term uptrends, though readings for the most part are weaker than they were at last reading. The economically sensitive industrial, energy, and consumer discretionary sectors are notably strong; the more defensive health care and consumer staples groups are weaker. Interestingly, we're seeing less bullish movement among raw materials stocks, reflecting continuing non-confirmations of stock market highs among such commodities as oil and industrial metals.

Here's how the sector readings shape up as of Friday's close:

MATERIALS: 220
INDUSTRIAL: 380
CONSUMER DISCRETIONARY: 360
CONSUMER STAPLES: 200
ENERGY: 400
HEALTH CARE: 220
FINANCIAL: 320
TECHNOLOGY: 300

At last reading (which I update each morning before the market open via Twitter; follow here), 30 stocks in my basket were trading in short-term uptrends, 10 were neutral, and none were trading in downtrends. It is only if we see the non-trending stocks converting to downtrends and some of those in uptrends downshifting to neutral that I would be aggressive in acting upon the persistent divergences in the market. Thus far the market has been managing to make fresh price highs week over week, and we need to respect that, even as we keep an open mind to the possibilities of reversal.
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