Last week's sector update noted that we were seeing bullish sector action, with notable rotation and possible topping action. We've seen more of the same this past week, as most of the S&P 500 sectors that I follow lost Technical Strength (a short-term measure of trending). As we can see above, fully half of the sectors are now in a non-trending mode; only the defensive Consumer Staples group gained strength over the week. Particularly notable were dips in the economically sensitive Materials, Industrial, and Consumer Discretionary groups, as questions have continued regarding consumer spending and the vigor of the economy apart from auto-related stimulus.Here's how the Technical Strength of the sectors looks as of Friday's close. Recall that the sectors vary between +500 (strong uptrend) and -500 (strong downtrend), with readings between -100 and +100 suggesting no significant directional tendency:MATERIALS: 240
INDUSTRIAL: 220
CONSUMER DISCRETIONARY: 40
CONSUMER STAPLES: 200
ENERGY: -40
HEALTH CARE: -20
FINANCIAL: 320
TECHNOLOGY: 40
I continue to view the recent market action as part of a broad topping process that eventually should take our sectors into bearish territory. Last time that occurred (see early July readings above), we had an excellent intermediate-term buying opportunity. As long as those pullbacks in Technical Strength occur at successively higher price levels, we have to regard the longer-term trend as bullish..
