It is a big mistake to look at the "market" and paint it with one broad brush. This week's sector analysis illustrates that in spades. In the chart below, you can pretty plainly see that the bull market beautifully confirmed new highs until October 2010. Each time the S&P 500 made a new high, the percentage of stocks trading above their 50-day moving average move up to that 90% level. Quite often, that was a leading signal that the internal market was tiring and a healthy correction was about to occur. But since October 2010, we have seen the S&P 500 (and most other indices) climb, and then each time a new high was made, it was met with fewer and fewer stocks participating.
Click to view larger image.
But not all of this is bad, obviously, since you've seen a strong market this year. And if you had to come up with a theme for this year, it would most likely be "commodity-led." However, there is currently a huge dichotomy in the Energy sector. While 97% of large-caps are currently trading above their 50-day moving average, only 70% of mid-caps fit that description. That's very important to acknowledge, along with recognizing the very overbought posture of Energy stocks.
Yet, keeping with the theme, we've also seen Industrials really hang in there this year, particularly those that are helping to plow the fields or mine the mines that produce commodities. And of course, this old standy is a testimonial to the global economic resurgence in the big picture.
So overall, we continue to look for trends in the sectors as the market evolves in order to determine what areas are leading the pack.
To view today's complete Weekly Sector Report, click here.
Don Hays, Nicholas Warf and Justin Wood
Please see important disclosures at the bottom of this page.