What is Sector Analysis?

Sector analysis involves examining the performance of different sectors of the economy (like Technology, Healthcare, or Financials) to gauge the overall health and sentiment of the market. Market breadth indicators, like the Advance-Decline line, measure how many sectors are participating in a market move.

How to Interpret the Charts

• Performance Ranking & Relative Returns: These charts show which sectors are leading or lagging the market. Strong leadership from cyclical sectors (like Technology and Consumer Discretionary) is often a bullish sign, while leadership from defensive sectors (like Utilities and Healthcare) can signal caution.
• Advance-Decline (A/D) Line: This line rises when more sectors are advancing than declining and falls when the opposite is true. A rising A/D line that confirms a rising market index (like the S&P 500) is a sign of a healthy, broad-based rally. A diverging A/D line (e.g., the market is rising but the A/D line is falling) is a classic warning sign of a weakening trend.
• A/D Ratio: This shows the ratio of advancing to declining sectors. Extreme readings can signal overbought or oversold conditions.

Practical Applications

• Confirm the strength or weakness of a market trend by checking if it has broad participation.
• Identify potential turning points when breadth indicators diverge from the primary market index.
• Find opportunities for sector rotation by identifying which sectors are gaining or losing momentum.