Key Points
While the Technology Sector attempts to stabilize and move higher on a relative basis, one group that bullish investors want to see “get in gear” is the Semiconductors / Semiconductor Equipment industry. The index that tracks the semis made a push to record highs last week only to be turned away yesterday. We now look for support to hold at the rising 50-day moving average. The relative trend has stalled in the near-term, with the 50-day moving average shifting from rising to flat. Equity bulls do not want to see relative support break as semis tend to lead the overall market.
Visiting the Sector Relatives
All the charts below will look at the individual sector indexes on an absolute basis (top panel) and relative to the S&P 500 (bottom panel) to get a sense of leaders, laggards, and shifts in trends. We include the 50-day moving average on each.
Materials
The S&P 500 Materials Sector is in an uptrend, trading near all-time highs and above the 50-day moving average (red). The group has been an outperformer since the bottom in March 2020, but the relative trend has begun to stall, above its own 50-day moving average and below resistance at the January highs, to trade in a relative consolidation.
Communication Services
The Communication Services Sector is in a steady uptrend, trading above the rising 50-day moving average and near record highs. On a relative basis, the group remains volatile and has been in a consolidation since March 2020. One potential positive for the relative trend is that the 50-day moving average is moving higher. This group is home to some of the largest stocks in the market and a relative breakout would likely be supportive of the bullish equity trend overall.
Financials
The Financials Sector is also in a clear uptrend on an absolute basis, above the 50-day moving average and trading at record highs. Relative to the S&P 500, the group has pulled back to support at the rising 50-day moving average. Thus far, earnings have not been a catalyst for continued relative outperformance as a move lower in rates may be providing a near-term headwind.
Industrials
The Industrials Sector is trending higher, above the rising 50-day moving average and trades near record levels. Relative performance has turned choppy in the near-term with the trend oscillating above and below a 50-day moving average that has also become more volatile in the near-term.
Technology
The Technology Sector recently broke to new highs on an absolute basis, after support at the September highs was tested and held and is trading above the rising 50-day moving average. Relative performance for the group has been flat since last July. On a potentially bullish note, the relative trend found support at the bottom of the consolidation zone and has subsequently regained its own 50-day moving average.
Leadership on the part of the Technology Sector is not a requirement for a bullish equity trend, but as the largest weight in the index, it would likely provide a tailwind should the group trade to relative highs.
Consumer Staples
Consumer Staples have staged a breakout from a consolidation that began last August and are trading at record levels above the rising 50-day moving average. Equity bulls will take comfort in the relative trend, as this defensive groups remains an underperformer and below a declining 50-day moving average.
Real Estate
Real Estate, another defensive sector, is threatening a breakout to new highs on an absolute basis above the rising 50-day moving average. The relative trend is, perhaps, more interesting in that a long downtrend appears to be reversing. The relative ratio has regained the 50-day moving average, which is beginning to move higher, and has been making higher highs and higher lows since bottoming in January.
The relative trend has caught our attention and is now on the radar for a break above near-term resistance.
Utilities
On an absolute basis, Utilities remain in a volatile consolidation with no clear directional indication from the 50-day moving average. The relative trend is to the downside and the 50-day moving average continues to move lower.
Health Care
The Health Care Sector has moved to new highs along with the broader equity market after a brief undercut of the 50-day moving average. The relative trend is the concern for the group, as the textbook series of lower highs and lower lows remains in place and the ratio remain below the declining 50-day moving average. We also note that, on a relative basis, the group is holding below the 2019 consolidation zone.
Consumer Discretionary
The Discretionary Sector is an absolute winner, breaking to new highs recently, but a relative loser as the group appears to have rolled over vs the S&P 500. The relative trend has made a series of lower highs and lower lows since October and the 50-day moving average is now moving lower as well.
Energy
The Energy Sector is consolidating on an absolute basis, at the rising 50-day moving average. It is interesting to note that, despite the strong performance since November, this group is not close to threatening new highs. The relative trend continues to work through the base-building process as it trades below resistance and has recently lost the 50-day moving average.
Take-Aways
The fact that many of the individual sectors of the market are trading at or near record highs on a relative basis is a confirmation to the bullish equity trend. We still do not have a clear answer to the question that we posed last week relating to leadership. The equity market is in a phase that can best be described as a series of mini rotations and no one sector has stepped up to take the lead.