Stepping Inside Sector Strength During the October Rally

When we see large price movements in the market – like our recent strong rally over the last week – we can break down the picture into smaller pieces by looking at “Sector Strength.”

We can study which sectors were strongest, which lagged behind, and what this may suggest for the broader market.

Let’s take a look at Sector Strength on the way down from 1,900 (on the S&P 500) and now the path higher:

When discussing sectors, we often break them down into the six “Risk On” or Offensive Sectors that typically do best (outperform) during bullish market phases.

These include Financials, Discretionary, Technology, Industrials, Materials, and sometimes Energy.

We then break down the other sectors as “Risk-Off” or Defensive sectors that tend to do best during down-markets or retracements.

Let’s focus our attention first at the bottom of the chart on the “Defensive” Sectors of Staples, Health Care, and Utilities.

At the moment, Consumer Staples (XLP), Health Care (XLV), and Utilities (XLU) are at or above their recent new highs.

This reveals relative strength because all other sectors are clearly beneath their recent September price highs.

It suggests defensive or cautious money flow from the “Big Money” as they are electing to be more protective during both the retracement and the current rally.

We’ll take a more cautious approach as a result of the stronger “Defensive” sectors relative to the “Offensive” sectors and will monitor the S&P 500 rally closely.

Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.

Corey Rosenbloom, CMT

Afraid to Trade.com

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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

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XLF Shows Relative Strength – Flags form in SPY and IWM

It is Fed week and stocks are in corrective mode. IWM and SPY edged lower this month, while QQQ has traded flat since late August. The patterns for SPY and IWM look like falling flags, which are bullish continuation patterns. Breakouts in both would be quite bullish for the market overall. It could be a volatile week for Treasuries because the Fed makes its policy statement on Wednesday. The 20+…

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Utilities Sector Benefits as Market Turns Defensive

via StockCharts.com – Blogs:

The Sector Carpet is mostly red on Monday, but pockets of green can be seen within the utilities sector as money moves into this defensive area of the market. Pepco Holdings (POM) is leading the group with a 1.5% gain. DTE Energy (DTE) and Ameren (AEE) are also showing relative strength with gains. Chartists can double click on a box to focus on a particular sector.

Click this image for a live MarketCarpet

For more info: Utilities Sector Benefits as Market Turns Defensive

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Utilities Sector Benefits as Market Turns Defensive

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