Technical Rating of Sectors & Industries

In our prior post (Bear Market Watch 2015-09-20), we presented a monthly indicator that has done a pretty good job of identifying top of market exit points and post-bottom re-entry points for the S&P 500.

It combines 4 technical indicators into a single indicator that rates an index from zero (exit) to 100 (enter) in 25 unit stages.  It rates the S&P 500 at 25 as of the end of August — more about how it works in that prior post.

The 25 unit stage could be used to monitor the development of the situation toward an exit or entry; or possibly to guide a staged entry or exit.

Something that is at least interesting, and possibly helpful to some investors, is the time series aspect of plotting the rating system.  We present the time series in this blog from 2008.

The 4 indicators that are inside this indicator take these factors into consideration:

  • price position relative to moving average
  • direction of leading edge or moving average
  • time limits for price to make significant up or down movement
  • trading volume weighted tendency for closing price to be in the upper or lower part of daily price range

Important Note:  This indicator is technical only.  It does not include any fundamental factors.  It is backward looking in that it records what has happened to the security, and is only updated monthly.  It is forward looking to the extent that the price and volume action is the result of the forward looking opinions of investors in the aggregate.

Let’s see how sector and industry ETFs are rated using the same method. As you view the rating timeline, take note of how steady the ratings tend to be, how long they have been up, when they began a decline, and whether the decline is steep or gradual.

(click images to enlarge)

S&P 500 (SPY) rated 25


S&P 500 Basic Materials (XLB) rated 0


S&P 500 Energy (XLE) rated 0


S&P 500 Financials (XLF) rated 25


S&P 500 Industrials (XLI) rated 0


S&P 500 Tech & Telecom (XLK) rated 25

S&P 500 Consumer Staples (XLP) rated 25

S&P 500 Utilities (XLU) rated 25

S&P 500 Healthcare (XLV) rated 50

S&P 500 Consumer Cyclical (XLY) rated 50

MSCI USA Technology (VGT) rated 25


NASDAQ Biotech (IBB) rated 50

Dow Jones Aerospace & Defense (ITA) rated 25

S&P Homebuilders (XHB) rated 75

S&P Oil & Gas Exploration & Production (XOP) rated 0

MSCI Equity REITs (VNQ) rated 0


KBW Regional Banks (KRE) rated 50


S&P 100 Mega-Cap (OEF) rated 0

S&P 400 Mid-Cap (MDY) rated 0


S&P 600 Small-Cap (IJR) rated 25


Russell 2000 Small-Cap (IWM) rated 25


We have large cash allocations at this time (generally 50% or more) in most accounts (depending on client goals, preferences, retirement status and other circumstances), and are in a strong defensive position. We began increasing cash several months ago.

Among out long equity positions we have some SPY, KRE and VGT, but all positions are less than full allocations.

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