Sector Update as of November 8

Last week's sector update found a neutral short-term trending mode among the eight S&P 500 sectors that I follow via a basket of 40 stocks (five highly weighted issues within each sector). After briefly turning bullish, the two-day decline of Wednesday and Thursday returned many of the sectors to their short-term downtrends. Here's how we stand on the Technical Strength measure, with the percentage of stocks in each sector trading above their 20-day moving averages--as assessed by the excellent Decision Point site--in parentheses:
 

MATERIALS: -380 (23%)
INDUSTRIAL: -200 (16%)
CONSUMER DISCRETIONARY: -140 (13%)
CONSUMER STAPLES: -140 (29%)
ENERGY: -60 (38%)
HEALTH CARE: -140 (43%)
FINANCIAL: -280 (21%)
TECHNOLOGY: -280 (18%)

We can see that recessionary concerns are weighing on raw materials stocks and technology shares. Financial stocks, after seeing a solid bounce thanks to government support, have since fallen back into a short-term downtrending mode.

The percentage of stocks above their 20-day moving average captures trending on a more intermediate-term time frame. Note that sectors that bounced well during the recent market rise, such as health care and energy, still show fewer than half of their components trading above their moving averages. Particular weakness is evident among consumer discretionary, technology, and industrial sectors--all reflecting recessionary concerns.

Comments

[dr.doolittle:]

interest rates were at 5% one year ago, now they're back at 1%, the rate at which everyone on Wall Street now says caused the chaos. Isn't it appropriate that Wall Street was the one that blew up, then? Having said that, outside of the "financial" class where's the recession? Perhaps more accurately, where's the "market" blow-up? By this I mean the actual trade in goods and services and the commensurate mass bankruptcies? Outside of the auto industry which simply overcharges for an inferior product and some retailers I still don't see it. On top of that, the government is spending like a drunken sailor--how does that tell you the appropriate way to run your business? Once the flow of goods stop then MAYBE we can call that a recession, although I don't see any invading Army on our border and coming for use anytime soon. Until then it seems that we're only in the process of price discovery and it appears to me "bailing out" perfectly healthy banks--and now a select few stocks are moving higher instead of all trending lower. Excepting what Pelosi and Reed are blabbing about, this all strikes me as extremely bullish in a "selective" way.

2008 Nov 09 12:23 PM

[Urbane Gori...:]

doolittle.. I see it in the Baltic Dry Index (Down 90% this year) and the steel industry (scrap steel down 90%), the difficulty getting loans and carry credit, local businesses closing, layoffs from every aspect of the business world, home prices down in some cases 60%, 30% of individual States in bad financial condition, the capitulation of Iceland.. I could go on, but I guess I'm surprised that you haven't noticed this.

As far as the government spending like a drunken sailor.... Well, take a look at the 3 years after the crash of 1929. Herbert Hoover reacted in a laisse-faire fashion "letting the market correct itself'. Then look at the next 4 years where Roosevelt implemented government intervention. (Just go to Yahoo.com/finance/char... and type in ^DJI. The chart speaks for itself. Sitting on your thumbs (thanks Dubya!) leads to massive pain; much worse than we have experienced so far. Intervention (though nobody's favorite idea) is the only road.

Anyone who hasn't looked at a chart of the DOW for the 1929 period and compared it to our present year has missed out on the most amazing twin to our chart. Then look at the next eight years. It is very easy to see where Hoover left and Roosevelt took over. It's the 'V' bottom.

jegan ;-)

2008 Nov 09 04:19 PM