Where Is the (Sector) Leadership In This Rally?

For the last three weeks, I have been impressed by the confidence and resolve shown by the bulls as they have consistently used pullbacks to flood the market with new long positions. Perhaps algorithms have no fear…

More recently, however, as the bull leg has stalled around the SPX 900 mark, I have found myself thinking about the lack of ‘proper’ leadership. Yesterday and today, the rallies have been led by commodities, with gold and energy equities the top performers.

At the same time, the three sectors I think are most critical to the recovery, my so-called ‘indicator species’ sectors (financials, homebuilders and consumer discretionary stocks), have been unable to get out of the red today.

I am not sure where the leadership will come from that will eventually push the SPX back over 1000. Today large cap technology names First Solar (FSLR), Apple (AAPL), Dell (DELL), Research in Motion (RIMM), eBay (EBAY) and Intel (INTC) are all strong performers. Frankly, I would expect technology to play a strong role in the next big leg up, but leadership may come from a number of other sectors.

There are few guarantees in the stock market, but I can guarantee that gold and energy are not going to pull the SPX up over the 1000 mark and leave financials (XLF), homebuilders (XHB), and consumer discretionary stocks (XLY) behind.

(click to enlarge)

Comments

[jepittman:]

It may be that it will be the commodities market that brings confidence to the other sectors. If a believable bottom develops in things such as oil, gas, gold, and copper it may say to the rest that the economy will soon at least slow its rate of descent. Once it stops getting worse the other sectors should rally.

2008 Dec 11 01:45 PM

[who:]

The financial sector will no longer be the same - no investment banks, hedge funds will be very different, trust in investment funds as buy and hold, etc.

Discretionary buys would come any time soon since confidence is very low.

Home builders - probably the worst of the three.

2008 Dec 11 02:28 PM

[update:]

Why is it always a 'rally' when stocks stop their downward plunge for a week or two?

All we have done is consolidate slightly from oversold levels never seen before.

I have yet to see a significant 'rally'.

The dow chart is still a downward cliff.

2008 Dec 11 03:18 PM

[coyotebait:]

What rally?

CHOMP!

^__^

..

2008 Dec 11 05:38 PM

[einstein p ...:]

More like a bear bounce than a rally.

I agree that oil, basic materials, precious metals, and agriculture may be the sectors that lead. They were the leadership during the rally and they have fallen very hard. Still need to turn on the lights and eat. Whether you agree or not, the infrastructure play is about to go into effect in the USA and China. Other countries will follow. Some of the new tech companies will rally as well, especially if they are environmentally friendly or cut medical costs.

The financial stocks, home builders, and retail are in for tough sledding. The credit card fiasco is around the corner, along with problems in the commercial real estate sector.

Where's the leadership? Buy Obama.

2008 Dec 11 09:07 PM

[well:]

be cautious of oil fair value has been 25-30 barrel for over 10 years,, and fair value is still 30-40, 140 was pure speculation,,, opec cuts are false hopes when theres simply no demand and they only control 40% the cuts wont be enough and it will still continue to fall

congress should shut the market down after political events and votes as tommorow wont be pretty..the market barely even moves anymore....with everything already battered down over 60% i doubt i have the stomach to watch this turmoil anymore

2008 Dec 12 01:56 AM

[Genesisgkh:]

Commodities will be the leader for the next few years. As long as the USA keeps printing money and giving it out to every person/business who asks, dollars have to become worth much less. Runaway inflation will be here within 5 years, and it could very well be global, so all commodities will climb.

2008 Dec 14 02:20 AM