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Key Points

  • Multiline Retail is a Standout in the Discretionary Sector
  • All Eyes on Technology and Communication Services This Week
  • Cyclical Sectors Try to Stabilize
  • Defensive Groups Fade After a Bounce Attempt Last Week
  • Real Estate Faces a Relative Test

Chart in Focus

As the Consumer Discretionary sector fights to reverse its relative downtrend (see below), one industry within the sector is breaking out on a relative basis. The S&P 500 Multiline Retail Index is in a steady uptrend, above the rising 50-day moving average. While this absolute trend is well established, the relative performance is what catches our attention. The group is breaking to new highs vs. the S&P 500 and is above a rising 50-day moving average.

Visiting the Sector Relatives

All the charts below look at the sectors of the S&P 500 on an absolute basis (top panel) and relative to the S&P 500 (bottom panel) to get a sense of the leaders, laggards, and shifts in trends. We include the 50-day moving average on each.

Information Technology

The Technology sector continues to trade near record highs, above the breakout level and the rising 50-day moving average. Above 2,500, the structure of the uptrend from the March 2020 lows remains intact.

Relative to the S&P 500

On a relative basis, the ratio also remains above the 50-day moving average, and the near-term breakout level. Above these measures of support, the odds favor Technology continuing to outperform. A key test would be highs from last September.

Consumer Discretionary

The Consumer Discretionary sector traded to a record high yesterday after testing and holding the 50-day moving average last week. Recent strength has pushed the index back above the breakout level and out of the consolidation that had been in place since April.

Relative to the S&P 500

On a relative basis, the group remains in a downtrend, but is holding above the 50-day moving average (which is beginning to turn higher). This increases the odds that the ratio will reverse to the upside.

Communication Services

After testing and holding support and the rising 50-day moving average, the Communication Services sector closed at a record high yesterday. The group remains in a steady uptrend from the March 2020 lows, with pullbacks proving to be short-lived.

Relative to the S&P 500

The relative ratio has finally scored a decisive break up and out of the consolidation that has marked trading since March 2020. The breakout level and the rising 50-day moving average should provide support to near-term pullbacks should they arise.

Materials

Despite a near-term rally attempt from price-based support, Materials remain below the 50-day moving average. The moving average is heading lower and will likely act as resistance to further upside in the near-term.

Relative to the S&P 500

On a relative basis, the group remains below the 50-day moving average which is declining. The ratio continues to test the relative support level that we have been highlighting.  A break of support would confirm that this group has shifted into a lagging position.

Financials

Financials are trapped in a consolidation between price-based support and the declining 50-day moving average. Choppy trading is likely to persist until there is a decisive break in either direction.

Relative to the S&P 500

On a relative basis, the group remains below the 50-day moving average and support. Time will be needed to repair the damage that has been done to the relative trend.

Industrials

The Industrials sector is also in a consolidation, dancing with a flat 50-day moving average just above price-based support.

Relative to the S&P 500

On a relative basis, the group continues to move to the downside, trading below a declining 50-day moving average. The next support level is around the January lows.

Energy

The Energy sector can best be described as trapped. Former support, at the 2019 lows, has proven to be new resistance. Recent weakness found demand at the peak from the initial rally from the March 2020 low. The 50-day moving average continues to move lower.

Relative to the S&P 500

On a relative basis, the ratio remains below the declining 50-day moving average and price-based resistance.

Consumer Staples

The Consumer Staples sector is above price-based support and the rising 50-day moving average as it trades just below record levels. This structure is unchanged over the past week.

Relative to the S&P 500

On a relative basis, the group has faded from the declining 50-day moving average, unable to hold the strength that was seen early last week. At best, there may be a base-building consolidation beginning to take shape.

Real Estate

Real Estate continues to test support at the breakout level while trading above the rising 50-day moving average.

Relative to the S&P 500

On a relative basis, the group has pulled back to test the rising 50-day moving average. Resistance to further upside has been established around the September/October 2020 highs.

Utilities

The Utilities sector continues to hover around the 50-day moving average between support near the 300 level and resistance at 345.

Relative to the S&P 500

The relative trend remains bearish, below the declining 50-day moving average.

Health Care

The Health Care sector remains above support at the breakout level, near 1,460. The rising 50-day moving average is also near this support level, increasing the odds that it will hold if tested. Above 1,460, the uptrend from the March 2020 lows remains in place.

Relative to the S&P 500

On a relative basis, the group remains in a base-building process, above the 50-day moving average but below important resistance.

Take-Aways:

Following last Monday’s weakness and the subsequent rally over the remainder of the week, many of the absolute and relative trends remain unchanged. There are some signs of stabilization in cyclical sectors that have sustained damage over the past few months, but more work needs to be done to improve their trends. Two of the key leading groups, Technology and Communication Services, will be in sharp focus this week as key members of each report earnings this week. As always, our focus will be on the reaction of these groups to earnings reports, especially as leadership has been concentrating in these Mega Cap themes.

Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.