Sector Relative Strength: Technology and Financials

The charts below show the relative strength of the Financial and Technology sectors versus the S&P 500. In each chart, a rising line indicates that the sector is outperforming the S&P 500 while a declining line indicates underperformance. We have also included dots showing each time the Fed has recently cut rates (red) or left them unchanged (blue dots). Given the fact that the two sectors are the most widely followed sectors in the market, any meaningful rally in equities will need to see both sectors participating.

With the overall market correcting, it is not surprising to see that Financials have been weak. In the days and weeks ahead, it will be important for this sector to stabilize or pick up now that it has moved back down to the range it was in for much of the Summer.

While the Financial sector is lagging, the Technology sector is improving. After peaking back in July on a relative basis, the Technology sector has stabilized and has been improving over the last two to three weeks. If the sector can break above its prior peak, it should set the stage for an end of year rally. Otherwise, the market will be in for more of the recent lackluster action.

Comments

[AuContrarian:]

With SOX and Russell leading the pack today, it seems pretty clear that your thesis for the year end rally is intact. With CSCO's con call, the SIA revisions, we have the perfect bookend to the AMZN/INTC opening leg of earnings for tech. The 25% discount available for INTC and SNDK will vanish this week.

Nov 05 01:24 PM

[ETFdesk.com:]

Bove's call on doubling bank stocks might draw some more strength to financials: bit.ly/sLWM2

Nov 05 02:31 PM