Industry Relative Strength

Industry group 1 month performance
Building – Residential 19.70%
Finance – Consumer loans 12.50%
Retail – Apparel Shoes 12.30%
Banks – major regional 11.30%
Banks – southwest 11.20%
Oil – US exploration -23.30%
Oil Field Machinery EQ -26.60%
Machinery – Electrical -27.20%
Steel – Producers -29.70%
Coal -65.57%
Money continues to slowly flow out of stocks. The one month
RS rank is occupied by members of the retail and financial
sectors. For first week since middle of July, they experienced
stronger selling pressure.
The usual suspects at the bottom (commodity related industries)
finished the week lower, despite showing some resilience as the
weekend approached. The small bounce in Thursday and Friday
is most likely due to short covering than a consequence of
renewed funds’ long interest.
Market’s weakness is spreading slowly in all directions and there
are fewer places to hide. If you are a retail investor, flexibility is
your biggest weapon. There are no good or bad stocks, only
good or bad trades.

Industry Relative Strength

Industry group 1 month performance
Building – Residential 19.40%
Retail – Apparel shoes 15%
Retail – Wsale Auto 11.30%
Finance – SBIC Commercial 10.30%
Finance – Consumer Loans 10.10%
Mining – Silver -18%
Oil Field Machinery EQ -18.80%
Food – Meat Products -21%
Steel – Producers -29.50%
Coals -37.70%
The group “Building – Residential” scored third consecutive week of gains and continues to top the list of monthly RS. The Retail – Apparel, shoes group is in strong uptrend since the middle of July and climbed to second position. Last week brought 2 financial industry groups at the top. Both are advancing in good temp since the middle of July. Medical groups, which dominated the list during the last month had bad week and only one (Medical – Hospitals) managed to stay in top 10.
Looking at the bottom of the list, nothing changed. The same industry groups experienced even bigger correction.

Downside acceleration frequently preceeds reflecs bounces

Rob Hanna from Quantifiable Edges performed an excellent research on the short-term effects following downside acceleration. He tested a system than buys SPX at the close after 4 straight down days and the decline during the last (fourth) day is twice bigger than the preceding three. The system sells after x days, where x varies from 1 to 8. The positive expectancy of the system is excellent. Not only the reliability of the trade (% of time being right) is above 70% for all tested cases, but the average profit is more than twice bigger than the average loss. The nature of the trade is strictly short-term.

How come big acceleration in downside momentum often leads such reflex bounces? When the price of an equity reaches certain level of depreciation, it:

1. Attracts value investors.

2. The traders, who shorted it are afraid to give up their nice sized profit and are covering part of their positions.

3. Short-term traders are trying to trigger short-squeeze.

Industry relative strength

Top Industries 1 month performance
Building – Residential Comm 14.5%
Medical – Outpatient HM Care 13.3%
Printing – Commercial 12.1%
Medical – Nursing Home 11.9%
Medical – Hospitals 11.6%
Textile – Apparel 11.3%
Telecoms Services 10.8%
Medical – Dental Supplies 10.8%
Aerospace – Defense Equipment 10.7%
Retail – Discount 10.5%
Bottom Industries 1 month performance
Steel – Producers -20.10%
Coal -16.40%
Mining – Silver -15.70%
Food – Meat Products -13%
REIT – Mortgage Trusts -11.20%