Over the past month I’ve been mentioning that finance, health care, and now technology stocks are holding up best during declines. They are emerging as new leaders and should be where the money flows if we get a rally into the end of the year. They can also give us some clues to the “will the market rally” question. Those three sectors need to hold up on a relative strength basis to keep the rally prospect alive. Caution will be warranted if those sectors start to show up in the weakest stocks list. If they do then the odds will favor at least an intermediate term correction that is larger than we’ve seen for a few years.
So far this decline hasn’t destroyed the possibility of a year end rally. Technology, health care, and finance still have a good showing in the most bullish list. Below are the strongest stocks on Twitter yesterday during a steep decline. Financials have the weakest showing, but further down the list (not shown) are a few financials. Bank of America (BAC) is an example.
On the one day bearish list there are a lot of stocks from the leading sectors, but notice the weakness is mostly contained to yesterday. One day doesn’t make a trend, but can start one so keep an eye on the 1 week and longer bearish lists to for clues that the market is starting a larger correction.
One more thing that should give the bulls hope is the sector relative strength list. Notice that the recent weakness hasn’t broken the backs of the bulls. The bearishness lacks both breadth and duration. There aren’t a lot of negative sectors across almost any time frame. If this chart starts to show more negative sectors it will be a sign of bulls standing aside and not buying the dip for the first time in a couple of years.