Taking a look at the big picture

• May 5, 2006
• Brett Steenbarger

The Dow has made bull market highs this week, so I thought it might be worth
looking at the big picture to see where we stand.

As the Dow has made new highs, the broad market has been far
weaker. This past week, for example:

• We had 41 new 52-week highs in the S&P 500 Index, down
  from 80 two weeks ago.

• We had 61 new 52-week highs in the S&P 600 Index of
  small cap stocks, down from 100 two weeks ago.

• We had 36 new 52-week highs in the S&P 400 Index of mid
  cap stocks, down from 62 two weeks ago.

• We had 1 new 52-week high in the Dow 30 Industrials, down
  from 5 two weeks ago.

• We had 62% of S&P 500 stocks above their 20-day
  exponential moving average, down from 80% two weeks ago.

• We had 63% of S&P 600 small cap stocks above their
  20-day EMA, down from 78% two weeks ago.

• We had 56% of S&P 400 mid cap stocks above their 20-day
  EMA, down from 70% two weeks ago.

• We had 70% of Dow 30 Industrial stocks above their 20-day
  EMA, down from 90% two weeks ago.

• Since April 19th, value stocks within the S&P 500 have
  outperformed growth stocks.

• Since April 19th, value stocks within the Russell 2000 small
  cap stocks have outperformed growth stocks.

As the Dow has made new highs, sectors have moved in different
directions:

• Real estate stocks
  (
  IYR |
  Quote |
  Chart |
  News |
  PowerRating) are down more than 5% since March.

• Retail stocks
  (
  RTH |
  Quote |
  Chart |
  News |
  PowerRating) are down about 3% since March.

• Semiconductor stocks
  (
  SOX |
  Quote |
  Chart |
  News |
  PowerRating) are down about 4% since March.

• Housing stocks
  (
  HGX |
  Quote |
  Chart |
  News |
  PowerRating) are down over 8% since March.

• Defense stocks
  (
  DFX |
  Quote |
  Chart |
  News |
  PowerRating) are up about 5% since March.

• Oil stocks
  (
  XOI |
  Quote |
  Chart |
  News |
  PowerRating) are up nearly 10% since March.

• Gold and silver stocks
  (
  XAU |
  Quote |
  Chart |
  News |
  PowerRating) are up over 20% since March.

Oil is up and the dollar is down, going all the way back to 2001:

Interest rates have been rising with oil since 2003:

The bottom line?

Recent market strength has been selective, and it’s been getting
more selective in the past two weeks. Rising rates, rising oil, and the
falling dollar are weighing on growth sectors, and money appears to be flowing
to value sectors and hard assets.

I’ll be tracking these patterns on
my personal site to see if these shifts indeed foretell a weakening economy.
My best assessment? Watch the financial stocks
(
XLF |
Quote |
Chart |
News |
PowerRating). They’re the most
highly weighted sector in the S&P 500, and they’re up 3% since March.
If rates, oil, and the dollar indeed take their toll on the economy and the
broad market, we should see the impact on financial issues.

P.S. – Props to the Decision
Point site for the excellent data on new highs and sector performance and Pinnacle
Data for historical data on oil, the dollar, and rates.

Brett N. Steenbarger, Ph.D. is Associate Clinical
Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical
University in Syracuse, NY and author of The
Psychology of Trading (Wiley, 2003). As Director of Trader Development
for Kingstree Trading, LLC in Chicago, he has mentored numerous professional
traders and coordinated a training program for traders. An active trader of the
stock indexes, Brett utilizes statistically-based pattern recognition for
intraday trading. Brett does not offer commercial services to traders, but
maintains an archive of articles and a trading blog at www.brettsteenbarger.com
and a blog of market analytics at www.traderfeed.blogspot.com.
His book, Enhancing Trader Development, is due for publication this fall
(Wiley).