The right sectors aren't leading us out of the bottom
-
Jason Goepfert
Published: 2020-04-22 at 11:00:00 CDT
One of the ways to see if the rebound is sustainable is to look at the sectors leading out of the decline. Through the first week, it wasn't very encouraging, since the sectors that typically lead out of true bottoms weren't leading then.
A concern popping up now is noted by the Wall Street Journal:
“In past bear markets, you tend to have a change in leadership—the stocks that led you into a bear market weren’t the kinds that led you out,” [Mr. Larson] said.
This has been a common refrain. Because big tech stocks did so well leading up to the peak, and several of them have done so well lately, then it suggests we haven't really seen the kind of rotation that marks the end of bear markets.
Let's look at "false" bottoms. These are times when the S&P 500 hit a 52-week low, rebounded for at least 20 days, then fell to a lower low at some point in the following months.
Below, we can see the percentage of time each sector was among the top 3 performers during the year preceding a peak. We can compare that to the percentage of time each sector was in the top 3 in the 20 days following major lows that didn't see a lower low within the next year.
In the year leading up to the peak before a bear market, defensive sectors had a strong tendency to be leaders. When stocks bounced during failed rally attempts, there was a lot of variance between sectors. Tech and financials tended to lead out of the lows, but other sectors were more represented than during "true" bottoms.
The kind of sector leadership we've seen over the past 20 days is more like "false" bottoms than "true" bottoms, but it's not a huge edge. Overall, the idea that sector leadership should rotate when coming out of a bear market is not supported by evidence going back to 1928.
This is an abridged version of our recent reports and notes. For immediate access with no obligation, sign up for a 30-day free trial now.
We also looked at:
- A much more in-depth look at true vs false bottoms and the kinds of leadership we tend to see
- The ZEW survey of German confidence is showing present fear and future hope, and what that means
- The McClellan Oscillator shows that breadth momentum is turning negative
- The Nasdaq fell hard on Tuesday, but breadth wasn't too bad
- Gold optimism is high and the gold/oil ratio has gone parabolic
Related Posts:
- The Closest 200-Day Comparisons
- Deviation from Trend Thrust Concept and Nikkei 225 Signal
- Time to Keep a Close Eye on the U.S. Dollar
- Macro Good, Macro Bad
- Copper on Cue
Tagged As:
The post titled The right sectors aren't leading us out of the bottom was originally published as on SentimenTrader.com on 2020-04-22.
At SentimenTrader.com, our service is not focused on market timing per se, but rather risk management. That may be a distinction without a difference, but it's how we approach the markets. We study signs that suggest it is time to raise or lower market exposure as a function of risk relative to probable reward. It is all about risk-adjusted expectations given existing evidence. Learn more about our service , research, models and indicators.
Follow us on Twitter for up to the minute analysis of market action.
Follow @sentimentraderNot ready to signup up for a free trial yet?
Signup for our Daily Lite email to receive highlights of our daily report, research and studies.
Follow us on Twitter:
Follow @sentimentraderSubscribe to our Youtube Channel:
RSS Feed
Subscribe to the Blog RSS feedTags
Recent Blog Posts
Brought to you by:
>