A few weeks ago I promised another review of the sectors. I have been deliberately postponing that as I had wanted to do that review at a time when the markets were not racing ahead – only because it is more difficult at these times to decipher the real underlying trends as opposed to hype of the time that drags everything along the way.

Most sectors have enjoyed a great rally over the last several weeks with few exceptions. Those sectors that have bucked the trend are Property Trusts which is into a solid down trend with Consumer Staples (note WOW) and Utilities locked in range trading patterns.

The daily Financial sector chart also displays a mild downward pattern but much of it maybe complete for the time being. Energy is also showing some signs of weariness and is now appearing to go into a quiet retracement.

To get the real picture of where the sectors are going it's essential to look at a weekly chart. This is best illustrated by looking at Information Technology (XIJ) and the contrasting pictures between the daily and weekly charts.

Firstly consider the XIJ daily chart below:

click chart for more detail

Contrast that with the XIJ weekly chart below:

click chart for more detail

You will see that what appears to be a major recovery in the daily chart is a mere whimper in the overall context of the weekly index and you can see there is a long way to go before the previous index high is surpassed. Traditionally when there is so much ground to recover not only does it take a long time but the road is typically bumpy. But back the right stocks in this battered sector and you will do well as so many have been oversold.

The real stellar performer and my favourite which I have championed in my columns so many times, is the Small Caps. I like the pattern of the index and it is my favourite for the coming months.

A special word about gold as it seems to be a sub sector that creates a great deal of interest. I am not a big fan of gold as an instrument for making money. I am happy to buy gold stocks that show underlying strength and have intrinsic value beyond gold but they must satisfy my usual criteria. Gold has had a volatile run up from $US256 March 2001 and last week broke through US$370 which is seen as a critical level. In my view using range trading techniques is a smarter strategy as opposed to adopting a buy and hold approach as gold’s volatile style could cause some sleepless nights for the inexperienced. For the futures trader with a sound “stops” strategy there is bags of money to be made! For the equity players enter only if they satisfy your entry criteria – as even if gold powers ahead you can still be left behind if you are in the wrong gold stocks.

Enjoy the ride.

Tom Scollon