Sunday, July 25, 2010

Stock market sector analysis

I decided to have a look at the sector charts to find out which were the strongest and weakest looking sectors right now. It's important to figure out where the leadership in this rally is coming from. Successful trading is all about finding an edge, and if you are in a stock that belongs to the right sector, it just increases the odds of your success a little more. I have commented on all the charts itself.

Some observations:

(1) Most of the sectors are below their June highs, just like the overall markets, and will have to cross these previous highs in order for the charts to turn bullish.

(2) There is most relative strength in Consumer Staples, Materials and Utilities sector. These are the sectors one should be looking at to find long plays. Pullbacks should be taken as buying opportunities in these sectors. Utilities look good for a breakout out of multi-month resistance.

(3) Financials are lagging behind the overall markets.

(4) The Health Care sector looks particularly weak and should provide short opportunities both at MA(50) and at printing of new lows.

(5) Most of the sectors are looking short-term bullish, so that's where the bias of the market lies.

If you haven't read them already here are the links to my posts on the important levels for S&P and NASDAQ for next week and an industry to particularly watch out for next week.

Take care and good luck!

P.S.: Coming up later tonight - How overbought are the markets here and how to play them?

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