Three of the ten major market sectors are in overbought territory and one sector is little more than a point away from becoming overbought. 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. We consider a level of 80 to be overbought and consider values under 20 to be oversold.
|
4/24/09 |
5/1/09 |
|
|
Consumer Discretionary |
81.37 |
84.79 |
|
Info Tech |
77.11 |
83.13 |
|
Energy |
71.91 |
80.90 |
|
Materials |
78.82 |
78.82 |
|
Industrial |
64.41 |
67.80 |
|
Finance |
62.50 |
66.25 |
|
Healthcare |
44.97 |
56.80 |
|
Consumer Staples |
50.65 |
54.55 |
|
Telecom |
46.67 |
46.67 |
|
16.90 |
18.31 |
Investors continue to be chasing after growth stocks, as seen by the jump in the BPI of Info Tech. But the gains within the market were fairly broad based as energy stocks, a potential inflation hedge, and financials, a favorite sector for bargain hunters, also posted gains in their BPI.
The chart of the materials sector is fairly typical of the BPI. As shown in Figure 1, the most striking feature of this chart is the recent volatility.
Figure 1: The BPI of the Materials sector shows constant wide swings since last summer.
This volatility is also evident in the stock market indexes (Figure 2). The NYSE Index is a broad measure of the market and also shows a pattern of increased volatility since last summer.
Figure 2: The NYSE Composite Index is also reflecting the volatility of investor sentiment.
The least volatility has been seen in the relative laggards of this market move. Investors often have short memories and some may have already forgotten that volatility can increase losses on the downside. Given that this market has become overextended, some of the less volatile sectors may be most suitable for new investments.
