Tracking the Flow for Energy, Healthcare, Financials and Technology

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In my earlier post, we explored money flows into the Materials, Industrials, Consumer Discretionary, and Consumer Staples sectors. Now it's the turn of the Energy stocks. Above we see the Cumulative and Five-Day Flows for five highly weighted stocks within the sector, plotted against the Energy ETF (XLE). The five stocks included in the analysis are Exxon Mobil (XOM), Chevron (CVX), ConocoPhillips (COP), Schlumberger (SLB), and Occidental Petroleum (OXY). What we see off the bat is that Energy issues have been relatively stronger than other sectors, thanks to commodity strength. Indeed, their chart looks more like the chart for the Materials sector than most of the others for this reason. Note also that the recent market weakness failed to bring XLE below its January lows. This non-confirmation, which we've observed among the other sectors as well, has played an important role in the market's very recent bounce.

That having been said, we did not see a bounce in XLE late last week, owing to the commodity selloff. Moreover, Cumulative Money Flow for the Energy stocks has been in a steady downtrend since August, 2007. Considering the historic strength in oil prices over this period, XLE performance has been muted. Indeed, it appears that money has been systematically coming out of this sector over time.

The five-day flows show that particularly little capital flowed into the sector during the bounce from the January lows. That has set up the current weakness. While the sector is range bound and the non-confirmation of the January lows was encouraging, there is not yet evidence of significant funds flowing into energy issues that would power an upside breakout.

Here we're examining five highly weighted stocks from the healthcare sector, with Cumulative Money Flow (top chart) and Five-Day Flows (bottom chart) plotted against the Healthcare ETF (XLV). The stocks included in the analysis are Pfizer (PFE), Johnson & Johnson (JNJ), Merck (MRK), Eli Lilly (LLY), and Amgen (AMGN).

Note that, unlike many of the other sectors, Healthcare shares have been quite weak during the recent market decline, dropping to new bear market lows. This weakness was preceded by steady dollar outflows from the sector: note the steady downtrend in Cumulative Money Flow. Not only is the sector weak, there are no signs at present of a sustained flow of funds into these shares.

Five-day flows have bounced a bit, but remain negative. Note how positive periods of five-day flow have not been sustained, often leading to subsequent price weakness. Of the sectors, this is one that is relatively weak, both in price performance and money flows.

Now we turn to five highly weighted issues within the Financial stock sector, tracking Cumulative Money Flow (top chart) and Five-Day average flows (bottom chart) against the Financial sector ETF (XLF). The stocks included in the calculations are Citi (C), AIG (AIG), Bank of America (BAC), Wells Fargo (WFC), and JPMorgan (JPM).

Like the Healthcare issues, Financials have shown recent weakness, breaking below their January lows during the latest market leg down. Observe, however, that we did not see a new low in Cumulative Money Flow, suggesting a possible drying up of selling pressure.

We've since bounced nicely off the latest lows on news of Fed intervention, but note that five-day money flows have stayed weak on the bounce. Much of market skittishness concerns the troubled financial sector; sustained dollar inflows would suggest a renewal of confidence among investors. Thus far, however, though we have seen less intense selling pressure on declines, we're not yet seeing sustained buying interest on bounces. I will be watching flows in this sector particularly closely given this dynamic.

Here we're examining five highly weighted Technology issues, with Cumulative Money Flow (top chart) and Five-Day Average Flows (bottom chart) plotted against the Technology sector ETF (XLK). The five stocks included in the calculations are Microsoft (MSFT), Intel (INTC), IBM (IBM), Cisco (CSCO), and Verizon (VZ).

We can see that the Technology sector, like Financials and Healthcare, has shown recent relative weakness, breaking below its January price lows. Nevertheless, we haven't seen new lows in Cumulative Money Flow, suggesting some drying up of selling during the recent decline.

The lessened selling, however, has not translated into aggressive buying. We are only modestly off the recent price lows, and five-day money flows have remained negative. As with so many of the other sectors, we've yet to see sustained buying interest that would lead us to expect a major change of trend.