U.S. Sector Trading Envelopes (4/29/08)

With talk of a possible bottom, definite strength in the US stock market, and potential reversals from technology and consumer stocks, we revisit a favorite measure of Birinyi Associates. Below we highlight the trading envelopes for the S&P 500, DJIA and the ten S&P 500 economic sectors.

As shown, technology and financials, which had been in steep declines, are now both more than 10% off their lows. The consumer discretionary, health care, and utilities stocks remain in a bearish cycle (10% or lower off their highs and less than 10% above their lows).

As of yesterday's close, sectors that are overbought include: S&P 500, DJIA, financials, technology, industrials, energy, consumer discretionary, telecom, and utilities (7 of 10). Health care, consumer staples and materials are neutral, no sectors are oversold. When the market and more than half of the sectors are overbought there is reason to be cautious, as that situation does not usually provide a short term buying opportunity.

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