Saturday, October 10, 2009

Sector Update for October 10th


Last week's sector review noted that we had seen a likely momentum high in the market and could expect further tests of the bull market price highs. That happened quicker than I expected, as we bounced sharply off last week's lows. That turned our Technical Strength measure, a proprietary index of short-term trending, solidly positive across the eight S&P 500 sectors that I follow weekly (see chart above).

Here are the sector readings as of Friday's close:

MATERIALS: 300
INDUSTRIAL: 260
CONSUMER DISCRETIONARY: 200
CONSUMER STAPLES: 340
ENERGY: 380
HEALTH CARE: 320
FINANCIAL: 340
TECHNOLOGY: 280

All the sectors are in clear uptrends. The turnaround from last week was particularly notable among the Materials and Energy sectors, reflecting strength in commodities. Health care stocks also made a significant trend reversal.

Despite the impressive market strength, none of the sectors is as yet hitting multiweek highs in Technical Strength. We're also seeing potentially troubling divergences among both stock sectors and indexes, as not all registered fresh price highs alongside the Dow and S&P 500 averages. I will be tracking momentum and the trend status of my basket of 40 stocks each morning before the open via Twitter (follow the tweets here).

To this point, I continue to view the market action as part of a topping process following a momentum price high in mid-September. That does not preclude further price strength, but does suggest that the upside may be limited here.
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