Absolute Trends Face Key Tests
as Trading Becomes Sloppy

by | Jan 18, 2022

Key Points

  • Growth Sectors See Leadership Continue to Slip
  • Cyclicals Hold Up Better, Energy Is Best of the Bunch
  • Defensive Groups Continue to Improve
  • Materials Test a Key Level
  • REITs Move to a Neutral Relative Trend

Visiting the Sector Relatives

Information Technology

The burden of proof remains on the bulls in the near term as they battle to defend support below the 50-day moving average. The 2,900 level remains a key “line in the sand” as below that odds favor a move to 2,800 and the potential for a lower low.

Relative to the S&P 500

The relative trend remains above price-based support, which is being tested as the new week begins but has lost the moving average, remaining in a neutral position for now.

Consumer Discretionary

The Consumer Discretionary has moved below near-term support at 1,560, opening the door to a move down to 1,480. The index is below the declining 50-day moving average, making it hard to state a compelling case for the group at these levels.

Relative to the S&P 500

On a relative basis, Discretionary continues to fade from the declining 50-day moving average and has lost price-based support.

Communication Services

The Communication Services sector also remains below the declining 50-day moving average as it fights to stabilize above support near 255. Since August, the groups have been making lower highs and lower lows, and more time is needed for a base to develop.

Relative to the S&P 500

Relative to the S&P 500, the group remains in a downtrend below the low from early 2021. A lot of work needs to be done before this sector becomes compelling on a relative basis.

Materials

Materials are testing the 560-breakout level and the rising 50-day moving average again this week. Above 560, the bulls are in control. Below that level, risk should be managed. Odds favor a continuation to the upside, however, as the group has been making higher lows of late.  

Relative to the S&P 500

On a relative basis, Materials remain neutral, battling the 50-day moving average below price-based resistance. Nothing has changed over the week.

Financials

Financials traded higher to start the week but faded to close just above short-term support at the 675 level. Price remains above the 50-day moving average, which is moving higher. Above this measure of trend, the bulls are in control.

Relative to the S&P 500

The relative trend is fading from the October highs, above the 50-day moving average. Moving above this resistance point is important for the group to establish a leadership position.

Industrials

The Industrial sector still can’t catch a break(out) as it continues to test the key 900 level. The 50-day moving average is moving higher and has been acting as support of late, but we want to see a sustained move above resistance to be confident that a bullish trend is underway.

Relative to the S&P 500

The relative trend improved slightly on the week, holding above the 50-day moving average and closing above resistance.

Energy

The Energy sector continues to power higher and is now extended above the 50-day moving average. While a near-term pause can’t be ruled out, the bullish trend is powerful and is likely to persist.

Relative to the S&P 500

The relative trend is also strong, above resistance and the 50-day moving average.

Consumer Staples

The bulls remain in control of the Consumer. Short-term support is near 795, while stronger support is at 760. The 50-day moving average is in the middle of this range and defines the bullish trend.

Relative to the S&P 500

The relative trend is also bullish, above the resistance level while trading above the rising 50-day moving average.

Utilities

Utilities are back at the breakout level, above the 50-day moving average. This one is simple; the bulls are in control above 355, and the bears are in control below 345. The trend is neutral between these two price points.

Relative to the S&P 500

The relative trend is holding above the 50-day moving average, which has shifted from declining to flat to rising. Breaking resistance is the next step in taking a leadership role.

Health Care

Health Care remains in the neutral camp, between support and resistance and below the 50-day moving average.

Relative to the S&P 500

On a relative basis, Health Care has turned sloppy, dancing with the 50-day moving average below short-term resistance.

Real Estate

Real Estate continues to test support below the 50-day moving average. The bulls are fighting hard but appear to be running out of steam. The door is open for a move to 295, a level that that must hold, or the trend will shift to bearish.

Relative to the S&P 500

On a relative basis, the group has lost the 50-day moving average. The trend is now neutral.

Take-Aways:

On an absolute basis, there are a lot of key support levels being tested as the new week begins. Broadly speaking, trends are becoming sloppy. Growth-focused groups are losing or have lost leadership positions. Cyclicals are holding up well and benefitting from rotation. Defensive sectors are also (ex-Real Estate) continued to improve.

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.