Relative Strength of Sectors. 28/1/2010

Here's a change of pace.

Above is a chart of relative strength of sectors. This is constructed using ratio charts of each sector or sub-sector and comparing how much in percentage terms they have changed in the past 50 Days. Par is represented by 100%.

The average (currently under 100%) means that the market as a whole is below the level it was at 50 Days Ago.

Using a top-down method of stock selection, it is best to invest in stocks from the strongest sectors.

The only Industry Sectors above 100% are: Telecommunications and Information Technology.

The Industry Sectors doing better than average are: Telecommunications, Information Technology, Financials and Materials.

Above are relative strength charts for each of those strong sectors.

Telecommunications is above 100, above its 200-Day MA. It is currently in a symmetrical triangle formation - so it would be best to wait for a break from that formation before investing in any stocks from this sector.

Information Technology, although above the 100% level, is below its 200-Day MA and has broken below its short-term uptrend line. Stand aside.

Financials, below 100%, below the 200-Day MA, and has broken below its short term uptrend line. Stand aside.

Materials, below 100%, below the 200-Day MA. Materials are interesting because, since the Bull Rally began early in 2009, every time it has dropped a little below the 100% level it has then bounced to provide a tradeable rally. XMJ has now dropped a little below the 100% level and appears to be in the process of bouncing. Watch carefully.

So - that little process gave us nothing actionable - but taking no action is a decision.

We will continue to watch these relative strength charts carefully.

Perhaps a contrarian approach would yield some results? If I looked at the weakest segments to see if any sectors were bouncing - would this yield some actionable results? I'll look at that tomorrow and report.

Until then - the market remains oversold - consolidation is occurring - we will be looking for a significant break upwards or a break below the supporting uptrend channel.

Cheers

Red