Sector Performance Analysis
The table below illustrates the relative performance of various sectors, broken down by two time periods. The first time period represents the March 6, 2009 lows to the May 8, 2009 highs, which represents our initial bounce off of the panicked 2009 low. The second time period represents the relative performance of each sector from the time of the initial reaction high on May 8, 2009 to the close on Friday, March 5, 2010. During the initial two month reaction bounce, note that every aggressive sector outperformed every defensive sector. That is exactly what we want to see in an advance to make us feel comfortable that the advance has staying power. We've certainly seen the staying power of that initial move. One problem that has surfaced since that initial advance is that more money is flowing towards defensive groups on a relative basis. In plain English, this suggests that traders and investors have a lot less tolerance for risk now than they did coming off of the market bottom. Because sentiment can be such an important component in a continuing advance, we must at least respect the nature of this short-term message.
| |
|
Type of
Sector
|
Price
3/6/09
|
Price
5/8/09
|
Price
3/5/10
|
Initial
Bounce
3/6/09-5/8/09 |
Rank
|
FF">Subsequent Bounce
5/8/09-3/5/10 |
Rank
|
| S&P 500 |
|
|
666.79 |
929.23 |
1,138.69 |
39.36% |
|
22.54% |
|
| XLF |
Financials |
Aggressive |
5.88 |
13.02 |
15.22 |
121.43% |
1 |
16.90% |
7 |
| XLI |
Industrials |
Aggressive |
15.14 |
23.51 |
29.90 |
55.28% |
2 |
27.18% |
3 |
| XLY |
Discretionary |
Aggressive |
15.85 |
23.99 |
31.79 |
51.36% |
3 |
32.51% |
1 |
| XLB |
Materials |
Aggressive |
17.83 |
26.80 |
33.17 |
50.31% |
4 |
23.77% |
5 |
| XLE |
Energy |
Aggressive |
37.40 |
51.84 |
58.15 |
38.61% |
5 |
12.17% |
8 |
| XLK |
Technology |
Aggressive |
13.17 |
17.09 |
22.31 |
29.76% |
6 |
30.54% |
2 |
| XLUL |
Utilities |
Defensive |
22.64 |
27.25 |
29.96 |
20.36% |
7 |
9.94% |
9 |
| XLV |
Healthcare |
Defensive |
21.63 |
25.59 |
32.02 |
18.31% |
8 |
25.13% |
4 |
| XLP |
Staples |
Defensive |
19.31 |
22.76 |
27.59 |
17.78% |
9 |
21.22% |
6 |
While the 22.54% gain in the S&P 500 since May 8, 2009 is quite solid, the pace of the gains is clearly slowing as everyone tries to determine whether our economy is gaining enough momentum to support higher equity prices. The gains recently have been strong across our major indices, but only the Russell 2000 has posted gains in excess of 2.5% thus far this year. In fact, the Dow Jones is up just 1.32%. Part of the reason, in our opinion, is that market participants are taking a much different view of the market's prospects now than they did in 2009. That keeps our caution flag raised high.
The current state of the market leaves us in a position to trade stocks with a very short-term mindset. Many technicals suggest this rally has legs, while the longer-term technical picture is quite different. Those nasty negative divergences apparent on long-term weekly charts are indicating that significant consolidation/weakness is just around the corner, if it hasn't already started. What does this mean to the everyday trader? Don't chase sector rallies. Instead, focus on strong stocks within sectors that are lagging temporarily but are near price or relative support. Timing of entry and exit will be more critical than ever.
|
