Absolute Trends
Are Unimpressive

by | May 17, 2022

Key Points

  • Growth Sectors Remain Under Pressure
  • Communication Services Have Short-Term Potential
  • Cyclicals Are Mixed, but Holding Up on a Relative Basis
  • Energy Rebounds to a New High for the Cycle
  • Defensive Groups Hold Their Relative Position

Visiting the Sector Relatives

Information Technology

The Technology sector remains below broken support (now resistance) at the 2,500 level and the declining 50 and 200-day moving averages. The series of lower lows and lower highs from the early 2022 peak keep the downtrend in place and the bears in control.  

Relative to the S&P 500

The relative trend is bearish below resistance and the declining 50-day moving average.

Consumer Discretionary

The Consumer Discretionary sector traded to a new low last Thursday before trying to rebound. The index remains below resistance at 1,280 and the declining 50 and 200-day moving averages. The bears are in control of the trend until these dynamics shift.

Relative to the S&P 500

On a relative basis, Discretionary is trading below resistance and the declining 50-day moving average.

Communication Services

Communication Services stocks have found some support at the pre-COVID highs, near 190, but are still below the declining 50 and 200-day moving averages.  It would not be a surprise to see a countertrend rally in the near term, but there is a lot of work to do to fix this trend.

Relative to the S&P 500

Relative to the S&P 500, the group remains in a downtrend, below the declining 50-day moving average, despite a rally attempt in the near term.

Materials

The Materials sector is holding in the consolidation zone that has been in place for more than a year. The group is below the 50 and 200-day moving averages, giving a slight edge to the bears on an absolute basis.

Relative to the S&P 500

On a relative basis, the trend remains in favor of the bulls, with the ratio above the rising 50-day moving average.

Financials

Financials are stuck in a wide zone of support below the declining 50 and 200-day moving averages. Below 580, the door is open for a test of the pre-COVID highs.

Relative to the S&P 500

On a relative basis, the group remains in a choppy consolidation, below the declining 50-day moving average. The bears have a slight edge as the lower bound of the support zone is now being tested.

Industrials

Industrials are stuck in a consolidation zone below the 50 and 200-day moving averages. Resistance is near 830, and support comes into play near 760. Below 760, the pre-COVID highs are likely to be tested.

Relative to the S&P 500

The relative trend is holding the 50-day moving average. Clearing the March peak would complete the bearish to bullish reversal.

Energy

The Energy sector has rebounded from support and traded to a new cycle high yesterday. The index is above the rising 50 and 200-day moving averages, keeping the bulls in control of the trend.

Relative to the S&P 500

The relative trend remains bullish, above the rising 50-day moving average and traded to a new high yesterday.

Consumer Staples

The Consumer Staples sector is holding below the breakout level but has found support at the rising 50-day moving average, which is above the rising 200-day moving average. Regaining the 810 mark would set the stage for a potential resumption of the bullish trend. 

Relative to the S&P 500

The relative trend is bullish. The ratio is above the rising 50-day moving average and trades near the highs for the cycle.

Utilities

Utilities have moved below the support while holding below the 50-day moving average. The group is above the rising 200-day moving average, but the trend has become messy.   

Relative to the S&P 500

The relative trend is bullish, above the rising 50-day moving average and trading near the high for the cycle.

Health Care

The Health Care sector is attempting to rebound from support at the lower bound of the consolidation zone while holding below the 50 and 200-day moving averages.

Relative to the S&P 500

While the absolute trend is not all that compelling, the relative trend is moving toward new cycle highs above the rising 50-day moving average.

Real Estate

Real Estate has found support at the pre-COVID highs and is trying to stage a rebound. The group remains below the 50 and 200-day moving averages and does not become compelling until the 305 level is breached to the upside.    

Relative to the S&P 500

On a relative basis, the group is below resistance and the 50-day moving average.

Take-Aways:

Except for Energy, there are few compelling absolute trends in the market. Some groups are trying to stage rebounds from logical support levels (Communication Services), but these are often playing out below key moving averages. Given these dynamics, investors who must maintain equity exposure may continue to be well served by focusing on what is “less bad.”

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.