Friday, December 17, 2010

"Sector Relative Strength: Another Head Fake For Financials" (XLF; FAS; FAZ)

We linked to Bespoke's heads-up last week: "Financial Rally: Third Time the Charm?" (XLF; FAS; FAZ; BAC; C; GS; JPM; MS; WFC). Here's the follow-up:

Thursday, December 16, 2010 at 03:39PM
A look at the relative strength of selected sectors shows some interesting trends unfolding over the last couple of weeks.  For starters, the Financial sector has been a serial underperformer over the last year, but last week's spurt in the had many hoping that this was the beginning of a new trend.  As we pointed out at the time, however, the recent rally looked a lot like prior head fakes we have seen in the sector over the last several months.  That appears to be the case once again this time as the sector's relative strength has been rolling over.

The Industrial sector has been range bound since the Spring, but over the last month or so it has been on a tear.  Part of this outperformance is a result of the strong run in transportations stocks.  Anyone trying to step in front of that train recently has been pummeled.  Take the example of FedEX (FDX).  The company missed earnings estimates this morning, but after trading sharply lower in the pre-market, the stock is now up 2% on the day.

Finally, the Technology sector seems to be everyone's favorite, but its relative strength versus the S&P 500 has taken a big hit recently.  At current levels, Technology stocks are only outperforming the S&P 500 by a slim margin year to date.
From Bespoke Investment Group