What Sectors Have Led the Rally?
Written by Price Headley
What’s Hot in Year Two of a Bull Market?
Like it or not (and believe it or not), we’re in a bull market. Last week we celebrated the one-year anniversary of the March-2009 bottom, and are sitting on 70% gains since that reversal a little over a year ago. Numbers don’t lie.
The event got us thinking about the shape of bull markets of the past, and the likely shape of bull markets of the future. Specifically, the one-year mark got us wondering if all the expected sector-rotation cycles worked out this time around, or ultimately failed as they generally do.
So, we did what any intelligent person would do – we put the theory to the test with real results, comparing sector returns over the prior twelve months to the way sectors are supposed to’ behave in the early stages of a new bull/expansion cycle.
Care to guess how it turned out?
Pick a Model. Any Model.
There are actually several sector-cycle theories out there. They all basically do the same thing though…. seek to identify which sectors are most apt to do well during a certain phase of an economic rebound and (hopefully) the accompanying phase of a bull market.
After a short-lived attempt to merge the spirit of each of these models into one sequence we could consider today, the partially-mismatched projected sector leadership essentially forced us to spell these out individually. We’ll just have to manage the expectation and play it by ear.
So, before we actually look at the last twelve months of sector results, let’s take a look at what the great gurus of the past suggested we should have seen. Here’s the grid.
Sector Leadership Models for Bull/Bear and Economic Cycles
What Was Expected Over the Last Twelve Months
Though we saw a few disparities about “what leads when”, we can still draw a handful of important conclusions regarding what should have been leading over the prior twelve months.
And which sectors were those? We’re going to say stocks just completed the ‘early bull’ phase, while the economy hit its trough and is now in the midst of its ‘early expansion’ phase. As such, technology, financials, transportation, and consumer cyclicals should have led the pack. You could make a good case for basic materials and the somewhat ambiguous ‘services’ sector leadership too, though that strength shouldn’t have kicked in until more recently.
Actual Versus Theoretical
And how did the market actually do? Take a look at the March 2009-through-March 2010 sector percentage-change chart.
Comparative Sector Percentage Change (03/09 through 03/10)
(Note the sector list on the chart is not only color-coded, but it’s also ranked – top-down – from best to worst.)
Or, if you’re more of a numbers person, here’s the raw data…
Sector Rankings: 52-Week
Remember how technology, financials, transportation, and consumer cyclicals were supposed to lead? Yeah, well, they were each in top half of sectors that beat the broad market…. not bad, considering there were only six sectors that did so.
As for the more-recently expected strength in the basic materials sector and the services sector, there’s nothing ‘more-recent’ about bullishness from the materials stocks – they’ve been leading since day one. They’re still leading though, so we suppose the theory essentially worked out.
As for ‘services’ (which includes things like some retail, entertainment, consulting, publishing, etc.), it’s difficult to say if the modal was on or off target without a meaningful, service-oriented index. But, we do know that retail, business services, newspaper, and movie studio stocks all did very well over the last 52-weeks, so we’re certainly not going to score one against the sector rotation model.
Incredibly Enough….
Read More Below
Commodity Outlook - Dollar Bearish, Natural Gas Bullish
Written by BigTrends Outside Contributor
So far this week, large cap stocks continue to lag the market which can be observed by looking at the Dow Jones Industrial Average which still has room to move higher before breaking the January high. One important thing to note is that volume has picked up this week considerably - particularly on the SP500 and OEX.
A lot of stocks and sectors are trading near their January high and this gives traders a reason to unload shares. On the flip side, the several sectors and indexes have broken their January high and this triggers a surge in volume as breakout traders try to take advantage of the new high and momentum. So you can see how the surge of volume may not be a totally clear indicator right now.
Here is my analysis of some key charts:
US Dollar:
I follow the US Dollar Index (USD) very closely simply because it affects the prices of stocks and commodities. I used a line chart below in order to take out the daily candle stick noise which made it very difficult for our eyes to pick up this pattern.
The chart shows a possible head & shoulders pattern and if that is the case then we should see the dollar start to slide lower. In turn, this would boost stocks and commodities. This is the fuel that I think could really move the market sharply higher in the coming weeks.
US Dollar Index Daily Chart
Gold:
The price of Gold (GLD ETF) looks to be setup for a nice bounce off support and the timing could just work out if the US Dollar starts to drop over the next few days. There could be a low risk setup just around the corner.
GLD Daily Chart
Silver:
Silver (SLV ETF) has held up well but today’s reversal candle to the downside scares me a little. The odds are that silver will carry this strong momentum selling down for another 1-2 days. Again, with any luck, it will test support and the US Dollar will start to slide lower.
SLV Daily Chart
Crude Oil:
Oil has had a great run the past month but as you can see it’s currently trading at the top of a large trading range. I would like to see a sideways move before it takes another run at the $84 level, but the 7 day bull flag that formed two weeks ago may have been enough to maintain the upward momentum. Again, if the Dollar drops we will see oil rally.
Oil Continuous Contract Daily Chart
Natural Gas:
This chart is actually very attractive looking. Even if you do not understand how to read charts I think it’s safe to say this one is a no brainer.
I will be closely watching for a potential low risk setup in the coming days.
Natural Gas Continuous Contract Daily Chart
Mid-Week Trading Conclusion:
Read More Below
Crude Oil - Holding Steady Despite Fundamentals
Written by BigTrends Outside Contributor
Crude oil prices topped $82.00 last week for the first time since Jan 11 as the market trended higher throughout the week after initially dropping to $78.00 on Monday. April crude oil rounded off the week up more than 2% closing at $81.50. The advance in oil was led by dollar weakness, strong equities and improving economic data as well as new fund buying to start off the new month.
Among the economic reports last week was the MSCI Emerging Markets Index, which climbed to five-week highs after India’s economy improved, and the U.S jobs data. The nations unemployment rate remained steady at 9.7% as the economy shed only 36,000 jobs in February compared to the 90,000 analysts had projected.
The weekly inventory report also supported oil prices last week based on the refinery utilization component. Crude inventories increased 4.1 million barrels and gasoline stockpiles rose 700,000, both much higher than expectations, but refiners ramped up operations by 0.7% to it highest level in five weeks at 81.9% of capacity on expected demand increases. Supplies of distillates were in line with estimates, falling 900,000 barrels.
The supply and demand fundamentals remain bearish, yet investors are continuing to look for signs the global recovery will sustain. According to the CFTC, speculative net-long positions rose 7.1% to 91,417 contracts for the week ended March 2. Hedge-fund managers and other large speculators are betting on another weekly increase in oil prices.
Technical Outlook:
Crude Oil Weekly Chart
Read More Below
Page 1 of 18