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Monday
Jan212013

Bespoke's Sector Trading Range Charts

US markets are set to open tomorrow morning following three days off due to the Martin Luther King Jr. holiday.  Below we provide our trading range charts for the S&P 500 and its ten sectors to show where things stand as President Obama officially begins his second term.  In each chart, the blue shading represents the sector's "normal" trading range, which we define as one standard deviation above and below the 50-day moving average (white line).  The red zone for each sector is between one and two standard deviations above the 50-day moving average, while the green zone is between one and two standard deviations below the 50-day.  Moves into or above the red zone are considered "overbought," while moves into or below the green zone are considered "oversold."

With the S&P 500 closing yet again at another bull market high last Friday, it's no surprise that the index is currently overbought.  As shown below, the S&P is nearly two standard deviations above its 50-day, which means its very extended at these levels.  While markets can stay overbought for long periods of time, when they get to the two standard deviation mark or higher, we typically see at least a pause.

Most sectors have similar patterns to the overall market, but Technology, Utilities and Telecom are three that look very different.  The Telecom sector is the only one that is below its 50-day moving average, while the Utilities sector is still struggling to gain back all the ground it lost right after the election when speculation about the dividend tax hike was running rampant.  Technology also looks very different than the S&P 500, and it's all due to weakness in Apple (AAPL).  Without Apple, Tech would be at new highs just like most other cyclical sectors.  

As Technology has struggled due to Apple, Industrials, Financials, Consumer Discretionary and Materials have more than picked up the slack.  Their recent surge, however, has left them extremely extended.  Industrials has pretty much gone parabolic over the last few weeks, so this one seems the most vulnerable to a short-term pullback.