Sector Sentiment

Using price and volume data to analyze the sentiment of each sector.

In each week’s Thrasher Analytics letter, a chart for the 11 S&P sectors is included with proprietary sentiment indicators that show changes in sentiment for both the broad sector as well as an average of the individual stocks within that sector. Both price and volume are used as inputs into the resulting sentiment indicators. This provides an excellent set of tools to pair with momentum and other forms of analysis to evaluate the health of a trend and the potential for a future reversal in trend.

This sector sentiment data is then taken and grouped by Offense (example: tech, energy, financials) or Defensive (example: health care, staples, utilities) sectors. By looking at the average score for each of the sector groups, we can see which group is showing stronger sentiment. This is displayed on the chart below in green and blue lines. Since the start of 2023, Offense Sector Sentiment has been stronger than Defensive sentiment, confirming the ‘offensive’ bias of the uptrend in the broad equity market.

To look at the data from a difference perspective, the Spread between the two scores is shown in the bottom panel which is used to produce the green arrows on the S&P 500 line. When SPX falls to a 20-day low, but the Spread between Offense and Defense sentiment is above -1, there’s a likelihood the dip could be shallow as investors are still showing a preference for more ‘risk on’ corners of the market based on sector sentiment. We can see that occur at the low in 2022 as the Spread began a positive divergence with price and during the several dips in the SPX in 2023. While this isn’t intended to time an exact low, it does provide insight in the sentiment of the market during short-term drops in the Index.

Turning the focus to the latest price action and sentiment scores, Offense Sector Sentiment has been steadily increasing for the bulk of 2024 after the small drop in early January.

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