Introduction to Sector Detector

Sector Detector is a weekly blog/newsletter written by Scott Martindale, Sabrient's Senior Managing Director.  In Sector Detector, Scott discusses the top and bottom sectors (as represented by ETFs), using the Sabrient SectorCast ranking model for a one-month forward look.

He also tracks the top two Sector ETFs long and bottom two Sector ETFs short.

We have all heard the experts recommend "hedging" your stock portfolio. You may have meticulously researched and selected all of your portfolio longs as your core holdings for long-term appreciation.

The SPY sold off early today in advance of the FOMC decision, but bounced strongly from the support line of the bearish rising wedge formation, which also is quite close to its 200-day moving average. Just as I said last week, all market indexes appear a bit extended and ready to pullback, but the bulls are game. Put/call ratio and volume is low.

The market continues to creep upward, with the short-term trend clearly positive albeit on quite low volume.  The S&P 500 remains above its 50-day and 200-day moving average, but as we head into the current week, our concern is about conviction within the marketplace.  The ECRI (Economic Cycle Research Institute) finally gave a positive uptick last week, but it would be early to conclude that we’re on a strong uptrend.

The SPY finished the month of July up a robust +7%, and then started the first day of August by tacking on another +2% gain. All market indexes appeared a bit stretched from the mean and ready to pullback today, but the bulls fought on mightily to keep the day’s loss minor.

Our thundering herd of baby bulls struggled mightily last week to stay clear of that gloomy channel, and at one time the S&P 500 threatened to cross back under its 50-day moving average, but it ended the week about where it started.

The market continues to look strong and resilient. Whether the news, economic reports, and earnings announcements are bad or good, the market has been absorbing the blows or chasing the momentum like a champion. Now it is struggling with various resistance levels from moving averages and chart formations, but continuing to hold up in this low-trading-volume environment.

The abundance of news last week -- most with a positive slant -- finally boosted the S&P 500 out of the Channel of Gloom in which it was mired for so long. Not only did the S&P 500 break out of the channel, but it is now threatening the 200-day moving average, having surpassed the 50-day MA last week.

It is surely understandable if an investor is afraid to participate in this choppy stock market. Bounces from support are met with selloffs from resistance. In 2008, we got a strong downtrend, and in 2009, we got a strong uptrend, but this year has been difficult to gauge.

Tipping Point Deja Vu

by David Brown, Chief Market Strategist, Sabrient Systems