Friday, July 25, 2008

Sector Performance in the Last Two Bull Moves

I have been fielding a bunch of questions about sectors, particularly oil and energy, over the past few days. Included in most of my responses has been a comparison of the March to May bull move and the most recent move that came off of the July 15th bottom. Since I rarely repost content from my subscriber newsletter, I thought it might be a good excuse to cut and a paste a section from Wednesday’s newsletter on sectors:

Let me reflect on the nature of the March to May rally from SPX 1256 to SPX 1440, a gain of 184 points. As shown in the sector breakdown (top graph), there was strong sector participation across the board. Interestingly enough, energy was the top performing sector, followed by technology and materials. Financials fell in the middle of the pack.

Fast forward to the past six trading days and we have the SPX now 82 points above the low. This is not quite half the move of the March to May rally, but an impressive showing for a little more than one week of work. Note how the sector breakdown looks quite different in the current rally (middle graph). The extent to which financials have powered the recent move is impressive, if a little lopsided. Note that only financials are the only sector to have made larger percentage gains in the current rally than in the March to May move. In fact, besides financials, only the industrial and consumer discretionary sectors have made at least half of the gains from the earlier rally in the more recent rally. All the other sectors have made gains of 3% or less, with energy and utilities showing losses.

The bottom chart uses the same data as the middle chart, except that percentage gains and losses are net of the performance of the S&P 500 index. This confirms that the financials are the only sector really responsible for moving the SPX. The consumer discretionary sector has provided a small lift and the industrials are just narrowly beating the SPX, but without participation from financials, this rally would have a much different look and feel.


Anonymous said...

The graphs really put things in perspective...excellent work. Add to your commentary that the only reason financials went up is because of short covering, and we have a very bleak backdrop for the overall stock market.
What develops over the next few days can really set the stage for a retest of the recent SPX 1200 lows.
Keep up the good work,

Anonymous said...

The graphs really put things in perspective...excellent work.
Your work its excelent.
I thing that spx have to break the recent low. If spx close below 1240 we will see my target 1140/1170. Very much complacency now.

Anonymous said...

I completley disagree. $tran rallied hard. That sector does support a sustainable counter trend rally. Short covering in finacials-who cares. It was adrevertised and easy to profit from. The squeeze continues.

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