Sectors Are All Trading Down or Neutral

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Includes: XLB, XLE, XLF, XLI, XLK, XLP, XLV, XLY
by: Brett Steenbarger

Last week's sector review noted that

the current pullback should not be the start of a bear swing, but should be sufficient to inflict technical damage on what has been a very strong market since July.

That technical damage was evident during the past week, as most of the eight S&P 500 sectors that I track fell into downtrend modes in the proprietary Technical Strength measure. We can see the broad turnaround since the week of 9/11: all sectors are either trading in downtrends or in neutral trending mode.

Last week's weakness was particularly evident among the economically sensitive materials, industrial, and technology shares. Amid concerns regarding reform, health care stocks were also notably weak.

Here is how the sectors lined up as of Friday's close. Note that Technical Strength varies from +500 (strong uptrend) to -500 (strong downtrend), with scores between -100 and +100 signifying no major directional tendency.

MATERIALS: -240

INDUSTRIAL: -220

CONSUMER DISCRETIONARY: -80

CONSUMER STAPLES: -60

ENERGY: -160

HEALTH CARE: -280

FINANCIAL: -180

TECHNOLOGY: -240

Only the Technical Strength from the second week of July was weaker than the present readings, going back to the market lows in March. I continue to view the recent highs as a momentum peak in the market and expect the current intermediate-term correction to lead to tests of the bull highs.

At present, however, the market is losing strength week over week, so it makes sense to wait for evidence of bottoming before playing for the next bull swing.

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