After taking a look at the 10 sectors that make up the S&P 1500 index (the combined S&P 500, S&P MidCap 400, and S&P SmallCap 600 indexes), only the energy and materials groups are near their recent highs and look attractive on a technical basis, according to Mark Arbeter, chief technical strategist for Standard & Poor's Equity Strategy. Consumer staples is the third sector that he thinks remains in an uptrend.
"The other seven sectors are either in bear markets or very definable downtrends," he says. "The consumer discretionary, financial, health care, industrials, technology, telecom, and utilities sectors are all below their 40-week exponential moving averages." (A moving average is a technical measure of the average price of a stock or index over a specified period; an exponential moving average is calculated by weighting recent values more heavily than older values.)
In addition, he notes that most of these sectors have seen bearish moving average crossovers, where the 17-week exponential average has crossed below the 43-week exponential, giving long-term technical sell signals.
"With this much prevailing weakness, we do not think that the overall market will have much staying power on the upside," Arbeter says.
Nevertheless, there are still some good options for investors who want to stay in stocks. We decided to take our cue from S&P's technical charts in this week's screen. First, we screened for stocks in the three sectors for which Arbeter sees appreciation.
We then looked for those with 5 STARS (strong buy) rankings—those perceived by our equity analysts to have the highest upside potential in the next 12 months.
Each name on the list also had to have a bullish reading under S&P's proprietary technical evaluation. S&P's computer models apply special technical methods and formulas to identify and project price trends for the stock.
Eight stocks made the cut:
|Kinder Morgan Energy Partners||KMP|
|Superior Energy Services||SPN|