Which Sector is Leading the Way?

As you can see in the chart below, the broad stock market remains in a correction.  And even through nothing is ALWAYS in stock market analysis, you can see that most corrections do not end until we see the percentage of stocks trading above their 50-day moving average drop to that 30% "oversold" line.  Our Asset Allocation Model continues to tell us to keep a 10% cash reserve, but it remains basically bullish, so we're pruning on overbought rallies, and we're replanting on oversold short-term corrections.

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As for the sectors, Healthcare and Consumer Staples are now the strongest, Industrials remain extremely steady as they hang tough in all markets, and Energy has been humbled in the short-term, while it's long-term trend remains intact.  Technology has also been following in its most recent pattern of getting fired up...and then fizzling.

And for the strongest sector, Healthcare, you can see the short-term and long-term relative strength patterns in the charts below.  Is the recent turn up in relative strength (seen in the chart to the left) just a blip, or is it a reversal of a trend that promises to have long-term potential?  To get somewhat of an answer to that question, you can see in the chart to the right that Healthcare has a wonderful long-term trend that looks to have been in a correction for the last two years or so.  So, from this view alone, history is telling you to give this sector the benefit of the doubt.

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As we always say, it all begins at the top with the market, and in corrections, hot stocks and sectors become cold stocks and sectors.  So, it is very important to keep these trends in the proper context.

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

Don Hays, Nicholas Warf and Justin Wood

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