Which Sectors are Leading the Market off the Bottom?

As you are aware, we've been comparing the action of the indices themselves to that similar "scary" correction of last summer.  We are also seeing that same similarity in the internal nature of the market as seen by the action of stocks in relation to their moving averages.  The chart below shows this comparison.  Even though we keep this in the back of our mind as we note each day's action, it should not be used in a primary way to establish your individual stock strategy.

Click on chart to view larger image.

It's been interesting to watch the action of the sectors as the market has risen from the recent low point that it made on October 3rd.  The mid-cap Technology sector has seen a nice bounce recently as we are now seeing 87% of the stocks in that sector trading above their 50-day moving average.  That is good, obviously, but at the same time, only 17% of these stocks are currently above their 200-day moving average.  Furthermore, the large-cap Technology sector currently has 77% of stocks above their 50-day moving average, with only 29% above their 200-day moving average.  A similar situation as the mid-cap sector.

Here are a few other trends that we've noticed in the actions of the sectors over the past few weeks:
  • The large-cap Consumer Discretion sector continues to perform very well.
  • It is a little worrisome to see the overbought Healthcare sector weakening.
  • Energy has seen huge declines in recent weeks.
  • The Basic Materials sector has failed to bounce much in this recent rally.
  • The very oversold Industrials sector has seen a nice bounce, which is a good sign.

If this is a new more growth-oriented phase, we should see those growth-oriented sectors begin to pick up, as the defensive sectors start to cool off.

Don Hays, Nicholas Warf and Justin Wood

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