Weekly Sector Relative Strength
Week of 10/6/2008
This page is dedicated to analyzing the market from a very high, sector-oriented perspective.  The screenshots here come from a program called RSInsight, which I wrote several years ago.  The analysis on this page will focus on trends in sector rotation, sector strength, and in finding the next best opportunities.  To learn how to read the grid, please see RSInsight Help.
The name of this website, RSInvestor, is derived from "Relative Strength".  As Jim Cramer likes to say, "There's always a bull market somewhere...".  I don't know if that is 100% true, but sector analysis at least helps us focus on the groups that are either outperforming now or likely to outperform in the near future.
Percent Movers
Week Ending October 7, 2008
Note:  My goal is to update this page each weekend, with commentary and sector news from the previous week.  Since this is the first one, I'll post information from the previous 5 trading days.
In Chart 1, we see the weekly Price % Change for all sectors.  For the first time that I can remember, all 31 groups are down at least 3% for the week.  That is a real panic event, and the reasons have been much publicized over the past several months.   
Chart 1
Weekly Price Percent Change 
What's new, however, is that the US Markets are starting to price in a more pronounced global economic slowdown.  Credit issues are hitting Europe, and a coordinated rate cut or other fix is fully expected by the markets. All the liquidity that has been pushed into the market, does not seem to make lenders looser with the pocketbooks.  As of 9/22, the M1 Money Supply spiked up to a record level, breaking out of it's 5 year flat trend.  
Commodities fell hard last week (Corn down -15%, Crude Oil -10%, Lumber -6.8%) on fears that demand will slip as major economies will require fewer raw materials.  Correspondingly, the following three groups had significantly larger price drops than the previous week:  Chemicals (-19.47% vs. -10.57%), Energy (-19.66% vs. -6.16%), and Metals & Mining (-22.53% vs. -12.32%).  Even the popular Safe Haven trade of buying gold couldn't save the Metals & Mining group, which is dominated, in terms of market cap, by iron ore and steel producers.
On the less negative side, the so called "Defensive" Groups fared better, albeit still down.  Tobacco, Drugs, and Food & Beverage all dropped less than 10%.  Mergers and Acquisitions dominated the headlines over the past week.  Altria (MO) is closing in on it's acquisition of US Tobacco (UST), while Eli Lilly (LLY) offered $6.5B for Imclone (IMCL).  These groups are generally good dividend stocks, non-volatile, and product things people need.  In the current environment, that's as good as an investor can hope for.
Longer-Term Sector Trends
This week's chart (Chart 2) shows the continuing money flow out of commodity and other economically sensitive groups and into the staples.  The eight groups above the S&P500 represent outperformance versus the S&P500 over the past seven weeks, roughly 1/2 of a calendar quarter.  This can be a bit deceiving, though, since we just showed above that all groups were negative over the past five trading days.  I use a 3-day moving average to smooth the weekly results a bit. 
Chart 2
Longer-Term Relative Strength to the S&P500
This view shows a sort of normalized Relative Strength.  Each cell shows how much better or worse it performed than the index (S&P500).  The advantage to this view is that you can see a spread trade perspective.  For instance, if you had gone long Tobacco stocks and short the market as a hedge, you would be up 11%, roughly, on the trade.  Conversely, if you were bearish on Metals & Mining, you could have bought the market as a hedge, and made the difference, shown here as 19.91%.
To me, the oddity here is Banking, MG410.  You can see that it has made a strong comeback since it's wretched performance in May through July.  Banks bottomed in mid-July, and were very oversold at that time.  Many have broken their July lows, and you wouldn't know it by looking at the bank charts by themselves, but they have actually outperformed the S&P500 over the past 7 weeks.  
Next week I expect more of the same, unless there is at least the hope of some resolution to the credit crisis.  The government has done about all it can do, and world markets are desperate.  For example, the Shorting Ban was instituted 9/18 in Europe, and that evening in the US.  Since the close on 9/19, the S&P is down 19.4%, in thirteen trading days.  Last Friday, the Rescue Plan was passed, and from the time it passed in the afternoon until the close, the Dow lost 475 points.
Money is flowing out of stocks at a rate not seen in generations.  There is no real logic at all.  Good companies are selling for literally 2 times earnings.  It doesn't matter.  All indications, such as the VIX, New Hi/New Lo ratio, etc. say we are due for a bounce.  I have been scaling in to names such as AAPL, POT, FCX, DRYS, SSO, QLD, and UYG just for a market bounce.  The problem is that those indications have been oversold for 2 weeks now.