Below we highlight our trading area and p/e charts of the ten S&P 500 sectors. The green shading represents two standard deviations above and below the sector's 50-day moving average. When the price moves towards the top or above this area, it is considered overbought. When it moves towards the bottom or below the green shading, it is considered oversold. Currently, Financials and Consumer Discretionary are the closest to oversold territory, while Technology, Consumer Staples and Utilities are the closest to overbought territory. Some interesting divergences are taking place with sector p/e ratios this earnings season. As shown in the first chart below, the p/e ratio of Financials has been rising in recent weeks, even as prices have declined. This is due to weak earnings from the sector, and it does not bode well those making the claim that it is undervalued. Industrials and Utilities, on the other hand, have recently seen their p/e ratios contract while prices have stayed the same or even risen. This positive divergence indicates earnings for stocks in these sectors remain strong.
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