Looking at sectors, we now have an evenly split market with 5 sectors having a majority of stocks moving higher, and 5 showing a majority of stocks with bearish trends. For this analysis, we are looking at the Bullish Percent Index (BPI) from StockCharts.com. This indicator is calculated by dividing the number of stocks in a given group that are currently trading with Point and Figure buy signals, by the total number of stocks in that group. This measure of market breadth continues to indicate that the losers from the first part of the year are now investor favorites.
|
3/27/09 |
4/3/09 |
|
|
Finance |
61.73 |
66.67 |
|
Consumer Discretionary |
59.62 |
66.42 |
|
Info Tech |
54.22 |
66.27 |
|
Materials |
42.70 |
58.43 |
|
Telecom |
40.00 |
53.33 |
|
Energy |
54.95 |
49.45 |
|
Industrial |
33.33 |
46.67 |
|
Healthcare |
35.93 |
41.32 |
|
Consumer Staples |
32.47 |
38.96 |
|
12.68 |
16.90 |
Stocks which lost the least in the bear market were defensive stocks. This means that they are ones investors use to protect capital in turbulent markets. The fact that defensive stocks are lagging in this recent up move may be due to the fact that bargain hunters have entered the market looking for a quick trade rather than smart money buying the new leaders.
Looking at the absolute levels of change in sectors confirm the assumption that the biggest losers are now the biggest gainers.
|
Decline |
Since March Lows (Rally rank) |
One week change |
|
|
Finance |
-48% |
+64% (1) |
+9 |
|
Industrial |
-31% |
+32% (4) |
+2 |
|
Consumer Discretionary |
-24% |
+33% (3) |
+6 |
|
Utilities |
-19% |
+16% (7) |
+1 |
|
Materials |
-17% |
+34% (2) |
+2 |
|
Consumer Staples |
-17% |
+14% (8) |
+2 |
|
Energy |
-15% |
+21% (6) |
+4 |
|
Technology |
-15% |
+26% (5) |
+5 |
|
Healthcare |
-15% |
+12% (9) |
0 |
|
S&P 500 |
-26% |
+23% |
Financials remain the leading sector at this point. They also lost the most in the bear market. This is more indicative of bottom fishing than a healthy rally.
Industrial stocks also lost more than the overall market during the decline (along with financials they were the only two sectors with losses greater than the S&P 500) and they are also among the leaders of this rally. One possible reason is that traders are buying these stocks because they believe that financials and industrials can’t get any lower than they did at the recent bottom.
This week, the greatest strength was in financials and consumer discretionary, with technology stocks finally making a big move. We need to see speculation in a healthy uptrend, and tech was the key to that in previous examples of sustainable bottoms. Can financials actually provide sustainable leadership at this point, given the uncertainty of mark-to-market accounting and whimsical government action/inaction?
The recent rally has been impressive. But the charts show that starting in late November 2008, the market (S&P 500) moved up 27% over 28 trading days. That followed a three-week 26% decline and preceded a two month 29% decline. This move is now showing about a 26% gain in four weeks.
It is likely that we are still in a trading market and investors should remember that stock prices can go down some days instead of just straight up. Leadership should change as the nature of the market changes and as of now, we should let the market, rather than our hopes, dictate our strategy.
