Corey Rosenbloom recently wrote in latest post "What is the Sector Rotation Model Saying in July 2011" that "the model continues to to show defensive/protective money flows, which casts a cautious tone over the broad state of the stock market."
I do not agree with him. Here is why:
when you just look at relative sector performance by analyzing bar charts, you will indeed come to the same conclusion. However, when we plot the sectors on a line charts, things start to look different. Indeed, defensive sectors have been outperforming since March, but relative strength has deteriorated in recent weeks (the chart shows relative strength against the S&P 500):
On the other side, some offensive sectors, Energy, Materials and Technology, obviously strengthened in June:
Industrials and Financials (not plotted) are still weak. I wouldn't be concerned of the latter ones because banks didn't really outperform throughout the entire rally anyways and the market has demonstrated that he doesn't need participation of the Financials.
Bottom line: yes, there was some rotation into defensive sectors since the beginning of the year. But a rotation back into offensive stocks might have started. Corey actually recognized recent offensive strength in his post, but I think the line chart gives a better impression of what is going on.