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Key Points

  • Technology and Communication Services are in Bearish Trends
  • Energy and Utilities Remain the Best of the Bunch
  • Industrials and Financials See Their Relative Trends Improve
  • Staples are Defensive Port in the Storm
  • Discretionary Is on the Radar, Trading at Support

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Visiting the Sector Relatives

Information Technology

The Technology sector has fallen below the rising 50-day moving average after being turned away at the falling 200-day moving average. The door is now open for a possible test of the June lows. We find it hard to make a compelling bullish case on the group if it is below the 200-day. 

Relative to the S&P 500

The relative trend has broken below the 50-day moving average as it trades below price-based resistance. An undercut of the June lows would solidify the group’s position as an underperformer.

High Beta / Low Volatility chart for March 25th research.

Consumer Discretionary

The Consumer Discretionary sector is wrestling with support and the 50-day moving average while trading well below the declining 200-day moving average. Holding above 1,200 is key for the bull to avoid a retest of the June lows.

Relative to the S&P 500

On a relative basis, Discretionary remains in consolidation with support near the rising 50-day moving average and resistance around the February/March peaks.

Discretionary / Staples (EW) chart for March 25th research.

Communication Services

The Communication Services sector remains below price-based support and the 50-day moving average as it trades well below the declining 200-day moving average. The June lows are in play for this group which accounts for more than 8% of the S&P 500.  

Relative to the S&P 500

The relative trend is below the 50-day moving average, trading close to all-time lows.

Lumber / Gold chart for March 25th research.

Materials

The Materials sector has broken below the 50-day moving average and price-based support. The declining 200-day moving average points to a deteriorating long-term trend.

Relative to the S&P 500

On a relative basis, the group remains less bad than its peers as it holds above support. However, we find it hard to make a strong case for leadership with the ratio below the declining 50-day moving average. 

Copper / Gold chart for March 25th research.

Financials

Financials are dancing with the 50-day moving average as they trade above price-based support at the pre-COVID highs. The declining 200-day moving average points to a weakening long-term trend.  

Relative to the S&P 500

On a relative basis, the ratio is beginning to move above resistance, and the 50-day moving average as the group has been “less bad” lately.

Small Caps / Large Caps chart for March 25th research.

Industrials

Industrials asked the 50-day moving average to dance as it traded below the declining 200-day moving average. There is price-based support at the June lows. Below that, there is not much to hold the group up. 

Relative to the S&P 500

The relative trend continues to grind higher, above the 50-day moving average. There is resistance just overhead, but the series of higher lows tilts the odds in favor of a breakout.

Growth vs Value (Large Cap) chart for March 25th research.

Energy

The Energy sector continues to trade above the 50 and 200-day moving averages. There is price-based support near 530. Above these levels, there are increased odds that the June highs will be tested.

Relative to the S&P 500

The group remains a leader with the ratio above the 50-day moving average and near the June peak.

Growth vs Value (Large Cap) chart for March 25th research.

Consumer Staples

Staples have lost the 50-day moving average as they continue to trade in consolidation below the rising 200-day moving average. Holding above the June lows keeps the uptrend from the COVID bottom in place. 

Relative to the S&P 500

The relative trend remains in a near-term consolidation but has been improving over the past week. The ratio is above support and is beginning to clear the 50-day moving average. Put this sector in the “less bad” camp.

Growth vs Value (Large Cap) chart for March 25th research.

Utilities

Utilities remain above the rising 50 and 200-day moving averages, maintaining the long-term uptrend from the COVID lows. Above 360, odds favor new highs for this defensive sector.

Relative to the S&P 500

The relative trend is holding above the 50-day moving average as it moves toward price-based resistance. A breakout would increase the odds of further outperformance.

Growth vs Value (Large Cap) chart for March 25th research.

Health Care

Health Care is testing support after breaking below the 50-day moving average. The 200-day moving average is beginning to decline, a sign that the long-term trend is turning bearish. 

Relative to the S&P 500

The relative trend remains below the 50-day moving average but is holding above price-based support. Regaining the 50-day would set the stage for further outperformance.

Growth vs Value (Large Cap) chart for March 25th research.

Real Estate

Real Estate is testing price-based support at the pre-COVID highs while trading below the 50 and 200-day moving averages. Below 260, the door is open to the 210 level.

Relative to the S&P 500

On a relative basis, the group is in a neutral trend, oscillating around the 50-day moving average below resistance.

Growth vs Value (Large Cap) chart for March 25th research.

Take-Aways

We find it hard to make a strong bullish case for the equity market with Technology and Communication Services, which make up more than 32% of the index, in bearish trends below their 50 and 200-day moving averages. For investors who must maintain an equity position, Utilities and Energy remain the leadership, while Staples, Industrials, and Financials are sectors that qualify as being “less bad.”

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