Which Sectors are Performing Strong?

The name of the investing game is "Top-Down," and that means that the evaluation of the stock market is top priority.  But you and I know that you can be perfect in your market analysis, and if you are in the wrong sectors and/or stocks, you might as well pack it up.  Thus, sector studies are of the utmost importance. 

So, let's start out this morning with the chart below, which shows the number of stocks in the "S&P 900" (the S&P 400 + the S&P 500) trading above their 50- and 200-day moving averages. 

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We've mentioned many times before that the percentage of stocks trading above their 50-day moving average has been a fantastic overbought/oversold gauge - when it moves up to 90%, it is time to cool off a little.  You can see in the chart above that the 90% line was hit back in October 2010, and since then, each rally - new high in the indices - has run into resistance at a lower high of participation.  Thus, the real internal correction has been going on now at least since last November.  And a few weeks ago, that percentage did move into the "oversold" category according to the number of stocks trading above their 50-day moving average.

Now, let's move on to the next observation of the internal nature of today's marekt.  If you are as "visual" an observer as I am, you will appreciate the heat map below from finviz.com that shows which sectors have guided your portfolio over the last year. 

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And according to the heat map above, you can see that the sectors with the most bright green, and the least read, are Energy and Consumer Staples.  Technology has also been a good performer over the last year, except for those four to six large-cap stocks.

Overall, as the sectors continue to evolve, we'll be keeping a watchful eye over them through our top-down analysis.  And this week, Technology, Industrials and Energy continue to lead the way for us.

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.