Bear Mountain Bull

It’s time again for a little BMB R&R, especially with the market behaving as bizarrely as it’s been. Maybe if we stop watching it start to behave a little better…

Posting will be very light and variable over the course of this week, but we’ll put up an open thread each market day for our readers to comment on the day’s market activity or to post any interesting links they might run across.

Check the space below for whatever the latest might be during this ‘off’ time, and please visit the various sites in the ‘Links’ and ‘Regular Stops’ for up-to-date market news and analysis.

BMB will be back in full swing by next weekend.

Bill Fleckenstein is on a roll.

And IIRC, it was just the other day when we heard BMB mutter:

The only real winners of the day were the gold/silver stocks, with the XAU up just over 2% (The move taking place in precious metals is one that shouldn’t be ignored…).(emphasis added)

One way for an investor to identfy — and invest in — those industry sectors that may be outperforming the others in the market is to watch the AMEX Sector SPDRs, a group of ETFs that represent stocks in nine major industry sector indices as designated by Standard & Poors. Together, the nine sectors represent all of the companies in the S&P 500.

Currently, we see strength in the following sectors:

• Energy (XLE): continuing to move higher along with oil prices
• Utilities(XLU): many utilities pay healthy dividends, attractive in this low interest rate environment
• Industrials (XLI): moving up slowly, but in a solid uptrend
• Basic Materials (XLB): as BMB noted earlier this week, has broken free of a long trading range.

Lagging sectors are:

• Technology (XLK): continues to struggle
• Health Care (XLV): sector was already weak, even before the latest troubles with MRK
• Consumer Staples (XLP): fallen back to January levels after peaking in June

An interesting takeaway from this list is the underperformance of such sectors as Consumer Staples and Health Care, which are often touted as the ’safe’ stocks that investors should move to in weak market conditions. That is certainly not the case right now.

You can check out the charts of the AMEX sector SPDRs very easily by going to the Market Summary page at StockCharts.com. Just below the ‘Major Indices’ you will find all 9 sector SPDRs, with icons linking to the respective charts at the beginning of each line.

BMB looked yesterday at the major market indices — the movements of which are all affected mainly by large-cap companies — and saw that their progress for the year has been less than spectacular. Are smaller companies doing any better? Let’s take a look at a couple of indices that track small and mid-cap stocks:

	We talked about the S&P Small Cap 600 earlier in the week, noting that it had broken above its peak of late June, but the selloff this week has nullified that move for now (green line). Also note the pattern of higher highs (which is good), and lower lows (not good). This type of action is not exactly what profitable trends are made of. Solid uptrends are built on patterns of higher highs and higher lows.
	The chart of the S&P Mid Cap 400 isn’t really any more encouraging than those of its large-cap cousins.

There are times in the market when an investor can gain from movements in smaller-cap stocks, when small or mid-cap issues are advancing while the large-caps lag. There are ETFs available to track the small and mid-cap indices, and mutual fund companies provide many products that focus on smaller companies. However, these charts seem to indicate that you don’t need to be in a real big hurry to jump into those funds.

Charts courtesy of StockCharts.com