Last week's sector update noted that sector performance had weakened from the prior week, accompanied by relative strength among Health Care shares and relative weakness among Financial issues. On the heels of Friday's weakness and default fears coming out of Dubai, we saw a continuation of the mixed sector performance, with most sectors in non-trending modes. Indeed, as we look at the Technical Strength measure of short-term trending, five of the eight sectors that I track each week are in neutral territory.
Here's how the Technical Strength readings break down sector by sector:
MATERIALS: 40
INDUSTRIAL: 40
CONSUMER DISCRETIONARY: 40
CONSUMER STAPLES: 120
ENERGY: -60
HEALTH CARE: 340
FINANCIAL: -440
TECHNOLOGY: -40
INDUSTRIAL: 40
CONSUMER DISCRETIONARY: 40
CONSUMER STAPLES: 120
ENERGY: -60
HEALTH CARE: 340
FINANCIAL: -440
TECHNOLOGY: -40
We can see that most of the sectors weakened modestly from the prior week. The notable weakness has been among the financial shares, which have been relative weak for six consecutive weeks. My concern is that this appears to be more than mere sector rotation; investors are actively avoiding banking shares, perhaps out of concerns regarding credit default and continued economic weakness.
It is difficult to see the market sustaining a solid uptrend in the absence of a healthy financial sector. I will be watching closely to see if credit fears continue to create weakness among the broad list of shares; as always, daily measures of trending, momentum, and strength will be posted via Twitter prior to each market open (follow here). For now, I'm viewing the current period (which began with a momentum peak in September) as a consolidation of the market's bull gains from March. Failure to stay above the October price and indicator lows would be an indication of a more serious market correction.
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