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In my recent blog post, I found that many stock sectors did not follow the S&P 500 Index to new bull market highs on Thursday. Indeed, of the 17 State Street "Spyder" ETFs representing various market sectors, only 6 closed at multi-month highs on Thursday.
The explosion of ETFs has made it easier than ever to track market themes and regimes, from large cap/mid cap/small cap to value/growth to the performance of various sectors. I find that tracking the sector Spyders is a quick and dirty way of staying on top of what is hot and what is not among stock groups.
Let's, for instance, see which sectors have been outperforming and underperforming during this recent market rally. We'll look at percentage changes since August 1, 2006:
| Spyder ETF Symbol | Sector | % Gain Since August 1st |
| XHB | Homebuilders | 21.64% |
| XLK | Technology | 21.36 |
| XLY | Consumer Discretionary | 21.17 |
| XRT | Retail | 19.68 |
| XSD | Semiconductor | 16.96 |
| XLB | Materials | 15.79 |
| XME | Metals and Mining | 13.56 |
| SPY | S&P 500 Index | 12.50 |
| XLF | Financial | 11.55 |
| XLI | Industrial | 11.36 |
| XBI | Biotech | 9.66 |
| XLU | Utilities | 8.90 |
| XPH | Pharmaceuticals | 7.18 |
| XLP | Consumer Staples | 6.95 |
| XLE | Energy | 5.16 |
| XLV | Health Care | 4.80 |
| XES | Oil and Gas Equipment/Service | 4.29 |
| XOP | Oil and Gas Exploration/Production | 1.66 |
Now here's the interesting thing: Of the seven sector ETFs that have outperformed the S&P 500 Index (SPY) since August (green numbers), only one made a new high on Thursday (Consumer Discretionary; XLY). Five of the ten ETFs that have underperformed SPY since August made new highs on Thursday.
What does this suggest?
It says to me that this has been a "catchup" rally, lifting the sectors most hurt in the May-July market drop. The sectors that were hurt the most in that decline are among those outperforming on this rally. They were so weak during that May-July period, however, that--even with recent strong performance--they're not making new highs. In short, what we're seeing is sector rotation, not a broad rally lifting all sectors to new highs. That provides a note of caution for those watching only the large cap indices and tempted to chase the new highs.
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 Performance, was recently released for publication (Wiley).
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