Our measurement of stocks trading above their 50-day moving average has moved up to that 90% resistance zone that has often capped the top of the all-encompassing rally. From such points, you often see further advances, but the continuing rally starts to show more dysfunction by the lagging participation of some sectors and stocks, which we have noticed in our review of the sectors this week. (See the chart below.)
Click on the image above to view a larger chart.
Each week as we review the sectors' relative strength trends, we always watch for those sectors that have been dramatically over-weighted or under-weighted and look for a tentative change of trend back toward a market weighting. In this week's review, we have three examples of this tentative change of trend:
- Consumer Staples: This traditionally defensive sector has been a shining star in the recent correction, as you might have expected. However, in the last 4-5 weeks of the rebound from that correction, we have seen that this sector is losing some of its defensive sizzle.
- Industrials: This very economically sensitive sector has seen its relative strength in a declining posture for almost a year, culminating in the weak posture of a few weeks ago. We are delighted to see its improving trend over the last 3-5 weeks.
- Basic Materials: While Industrials and Basic Materials often move in similar fashions, this has not been the case in recent weeks. The latest trends show very little improvement in this sector.
As the market continues to evolve following the recent correction, we will continue to provide you with timely updates as the Hays Asset Allocation Model guides our top-down approach.
Don Hays, Nicholas Warf and Justin Wood
If you are a subscriber to HaysAdvisory.com, click here to read today's Weekly Sector Report. If you would like to learn more about the research and commentary offered by Hays Advisory, click here.
Please see important disclosures at the bottom of this page.