Thursday, May 7, 2009

Relative strength

About every 5-6 months the market experiences a major weekly cycle low. These major cycle bottoms almost always involve some kind of panic selling and in this bear market every one of them has taken the market to new lows. At these panic lows the selling is usually great enough to have some effect on every asset class.

I thought it would be illuminating to see what sectors if any showed relative strength as the market fell into the last weekly cycle low in March.

There were a couple of sectors that showed mild relative strength. Semis and emerging markets both held about 11% above their Nov. lows at the March bottom.

China held about 24% above the Nov. lows.

Internet stocks and gold held almost 30% above the Nov. lows.

Not surprisingly the big winners were silver and miners at 47% and 73% above the Nov. lows.

I'll also point out that the entire precious metals sector did not make lower lows at the Nov. bottom. It was the only sector that was already showing relative strength as the market panicked into the bottom of one of the worst crashes in history.

There seems to be a big push into energy as this rally gets underway. That's understandable. Investors always try to return to the sector that did so well for them in the past. Just witness how sharp the rallies were in tech during the collapse of the tech bubble from 2000-2002.

I can't tell you how many friends and acquittance's have asked me if it's time to buy real estate.

As you can see energy showed no relative strength at the last bottom and both oil stocks and solars made new lows. Oil itself was actually weaker than the market and continued to drop into Dec. after the market had already bottomed.

The market has been telling us loud and clear where the big money is going if one will only listen.