Sector Relative Strength (4/28/08)

Below we have updated our charts of sector relative strength. In each chart, rising lines indicate periods where the sector is outperforming the S&P 500. Charts with red shading indicate that the sector has underperformed over the last year. Additionally, in each chart we have also included red dots that highlight each of the Fed rate cuts since August.

Over the last year four sectors have underperformed the S&P 500 (Consumer Discretionary, Financials, Health Care, Telecom Services), while six have outperformed. Although Financials have outperformed in recent days, the sector remains in a downtrend and is currently approaching the upper end of the downtrend. How the sector acts from here should be a good tell as to where we are in the credit crisis. If the sector stalls, it may indicate that things still need to be worked out. If the sector can break its downtrend though, that would be a sign that the worst is over.

After sharply outperforming, both Materials and Energy have hit minor snags as they traded to the upper end of their ranges. How the dollar performs from here may be the biggest variable in the outlooks for these two sectors. Meanwhile, the Technology sector has broken its downtrend line that was in place since late last year, while the sector is short-term overbought, investors may want to use any pullback as a chance to increase exposure in the sector.

click to enlarge