Sector Relative Strength: Energy and Financials

If there are two sectors that have attracted the bulk of investors' attention, they are Energy and Financials.  Below we highlight the relative strength of both sectors versus the market over the last year.  In each chart, when the line is rising it indicates that the sector is outperforming the S&P 500 and vice versa when the line is falling.  Additionally, the red dots indicate days when the Fed cut rates.

Regarding the Energy sector, throughout the entire Fed easing cycle, oil and Energy stocks rallied.  It wasn't until shortly after the Fed went on hold that the sector began to crack.  Based on these trends, unless the Fed is forced to start cutting rates again, energy bulls may have to go into hibernation.  The Financial sector has had an impressive rally since mid-July.  Even after this strong rally, though, the sector remains below the downtrend line that has been in place for the last year.

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Comments

[User 166319:]

Anyone wanting the lower risk Energy play needs to jump on the post IPO play of Energy Services Aquisition, (ESA;nyse) It's a holding company with more cash reserve than the overall price per share currently at $5.60. It recently announced plans to buy two major players in the oil and gas field, a pipeline company and pipeline construction company. After these deals move it will drive the stock forward into earnings which on Valuation will yield approx. $8.50-9.00 target. Company has an unforeseen ceiling with a built in basement thanks to it currently trading less than its total cash reserve.

2008 Aug 07 09:42 PM