I like to take a top down approach and observe the relative strength among the sectors of the S+P 500 index. This helps plan future trading and investment decisions. I typically like to observe sector rotation during corrections and subsequent rallies along with overall year to date statistics.
This chart above shows sector relative strength to the S+P 500 since the February 5th low in the S+P. We are seeing strength in Energy, as noted in a separate post last week, along with utilities, Basic Materials and Consumer Staples. The laggards have been Health Care and Consumer Discretionary.
Relative strength year to date continues to show Utilities in the lead, with Energy and Basic Materials overtaking the Health Care sector as 2nd and 3rd best. It’s also interesting to note that the more economically sensitive sectors are all underperforming, from Industrials to Consumer Discretionary. Now this is only a small sample size of course, but it makes you wonder whether investors and traders are preparing for a slow patch in what is already a very slow growth environment?