Saturday, May 21, 2011

Relative Strength In the Media & Blogosphere

Since around February, defensive sectors such as consumer staples, utilities, and healthcare have outperformed the broader market. This outperformance has been used as an argument that a bull market top may be forming. This thesis is being popularly disseminated; I have seen it mentioned by analysts and even in comments sections of blogs. These defensives also outperformed in the Summer of 2010, and often do during corrections.

This attention to a non-mainstream concept reminds me of 2009, when the Russell 2000 was greatly under performing the S&P 500 from late September to November. Similarly, this fact was popularly disseminated for its bearish implications and "sector rotation" became a buzz word. The relative underperformance was also projected to continue. From December 2009 to April 2010, the Russell appreciated over 25% while the S&P 500 rose about 10%.

Trends in relative strength (RS) are perpetually in the market. Like any other trend, when they gain popular attention, these trends are probably near complete. Also, in both cases from the last three years, RS was used to support bearish forecasts. The wall of worry remains.-- Breadth also remains strong, and the Fed accommodative.

As such, I would conclude that the market is currently in a corrective phase that will ultimately be resolved to the upside.


  1. I think we get a strong bounce tomorrow/ Wednesday. There is good support at the 1290-1300 level, if we make it there on this trip.

    BTW, Gold and Silver look relatively strong.

  2. Win, I see that as the most likely outcome as well. I don't have a strong opinion on PMs right now.


    Blogosphere looking rather bullish.

  4. Thoughts on this in retrospect?

  5. Excellent point. In retrospect, I was wrong. It's as simple as that.