The day after we posted Looking for a Bottom? Start with Sectors, the market tested a new 52-week low and sector performance was telling.

The S&P 500 ETF (SPY) traded as low as $74.34 on November 21 before bouncing back to finish the day at $79.52.

6 of the 9 major sectors also hit a new low on Friday creating the need to reset our thinking on sector outlooks.

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October 10th Group – Mixed Results

 

October 10 was the 7th straight day of a sell-off.  The market bottom was followed by a large bounce-back by the end of the next trading day.

On October 10, 4 sectors achieved 52 week lows:

Energy Select Sector SPDR Fund (XLE)

Consumer Staples Select Sector SPDR Fund (XLP)

Health Care Select Sector SPDR Fund (XLV)

Utilities Select Sector SPDR Fund (XLU)

Two of the four sectors failed the November 21 test.  XLE and XLU stayed above the October 10 lows while XLP and XLV set new lows.

Conclusion: The two sectors that set 52-week lows on October 10, XLE and XLU, are now clearly outperforming the rest of the market and should receive preference over their peers.

 

November 21st Group – Potential to Set New Lows

 

Six sectors hit their 52-week low on November 21 and one set a new low on November 20th.

Consumer Staples Select Sector SPDR Fund (XLP)

Health Care Select Sector SPDR Fund (XLV)

Technology Select Sector SPDR Fund (XLK)

Industrial Select Sector SPDR Fund (XLI)

Consumer Discretionary Select Sector SPDR Fund (XLY)

Financial Select Sector SPDR Fund (XLF)

The Materials sector actually hit its 52-week low on November 20.

Materials Select Sector SPDR Fund (XLB)

Conclusion: The seven sectors that set 52-week lows on November 20 and 21 still have the potential to go lower.  The next sell-off in the market should provide more insight on this group.

 

– Michael Vermillion

November 24, 2008