What is the internal action of the S&P 500 telling us?

Each week, we like to start our sector analysis by looking at the chart below, which provides us with a good depiction of the S&P 500's internal action.  You can see that, despite the new highs in the S&P 500, the internal action is showing a little more fragmentation.  However, at the same time, our Asset Allocation Model is still showing us very strong Monetary and Valuation conditions, which are feeding this bull market. 

Today, you don't have to look far in your portfolio to see the same story taking place as that shown by the declining percentage of stocks that are trading above their 50-day moving average.  It is not bad, but it is showing internal fragmentation, which makes our weekly sector analysis even more important. 

Our entire interest is based on having an Asset Allocation process that enhances your long-term investment performance.  This is also the case as we look at which sector allocations should be considered as your portoflio allocations constantly evolve.  So based on our own observation, each week we look at the very important quantitative "theoretical" sector weightings, but then put the historical trends, overbought/oversold ratings, and the deviation from trends together to offer our own "practical" recommended weightings.

This week, our sector analysis is showing that Industrials and Basic Materials continue to tell the Global Evolution story as their relative strength increases.  Also, while Energy has made a big comeback recently, the sector is now very overbought.  And lastly, Technology continues to lead the parade with our highest weighting.

To view this week's complete Weekly Sector Report, click here.

Don Hays, Nicholas Warf and Justin Wood

Please see important disclosures at the bottom of this page.