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DEFENSIVE SECTORS SHOWING RELATIVE STRENGTH

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In my last article, I laid out several arguments why it would make sense to be more cautious as you approach the stock market.  I'm bullish for the balance of 2013 - at least as of now - but the short-term has definitely turned more dicey.  One of the ways that I evaluate the strength of a move to the upside in the S&P 500 is by looking to see what areas of the market are leading the charge.  As of Friday's close, healthcare and consumer staples were the two best performing sectors of 2013, indicative of a market that is tired.
 
The good news is that financials on a relative basis continue pushing higher.  Rarely do we see overall market weakness when financials are strong on a relative basis.  But here are a couple of things to watch for if our major indices break out to fresh new highs once again.  First, do financials make yet another relative breakout that coincides with an S&P 500 breakout?  If so, it would be a checkmark in the bulls' column for sure.  More importantly, however, is whether the defensive sectors take a backseat to the more aggressive sectors on such a breakout.
 
Check out the chart below:
 
S&P 500 3.2.13

 
The Dow Jones and S&P 500 have been showing relative strength vs. their more aggressive counterparts - the NASDAQ and Russell 2000.  Should we see a break to fresh new highs with index leadership from the Dow Jones and S&P 500 and sector leadership from healthcare, consumer staples and utilities, it'll be a breakout worth ignoring.
 
Healthcare stocks (XLV) broke out on Friday, but did so with a long-term negative divergence in play.  In the current market environment, please make sure that you identify potential trading candidates with strong reward to risk trading profiles.  I found one such healthcare stock and am including it as my Chart of the Day for Monday, March 4th.  If you'd like more information, simply CLICK HERE.
 
Happy trading!
Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More
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