Key Points

  • Putting Growth vs. Value in Perspective
  • Technology and Discretionary Pause after Strong Runs
  • Cyclicals are Fighting Support at Their Breakout Levels
  • Utilities and Staples are Defensive Laggards
  • New Relative Lows for Health Care

Chart in Focus

Much was made of the underperformance of the Growth theme relative to Value yesterday. However, a bit of perspective is in order. The S&P 500 Growth/Value ratio peaked in September 2020 and traded in a consolidation for more than a year before breaking out this month. At the same time, the 63-day Rate of Change for the ratio is positive, signaling that the three-month trend is to the upside. If the trend is bullish and above the breakout level, Growth retains an advantage over Value.

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

After trading to another new high yesterday, the Technology sector reversed lower with the broader market. The trend remains to the upside, above the rising 50-day moving average which is coming into line with price-based support at the 2,810 level.

Relative to the S&P 500

The relative trend has finally taken out the high that was reached in September 2020 as it trades above the rising 50-day moving average, which is near the bottom of the support zone. Above this breakout level, the group is a market leader.

Consumer Discretionary

The Consumer Discretionary sector also traded to a new high yesterday before fading into the close. The trend remains bullish with support to near-term pullbacks around the September lows, near 1,600. Below that, the rising 50-day moving average becomes important.

Relative to the S&P 500

On a relative basis, Discretionary has retaken the short-term breakout level. The next test is the highs that were reached earlier this year. The rising 50-day moving average points to a bullish trend.

Communication Services

The Communication Services sector closed below the declining 50-day moving average yesterday but is holding above support at the 265 level. Trading since July has been choppy, and we are happy to let the bulls and bears battle to determine a clear direction.

Relative to the S&P 500

The relative ratio has moved further below the declining 50-day moving average and has broken support. Below these two levels, odds favor a move toward the early 2021 lows.

Materials

The Materials sector is fighting with support at the breakout level to avoid its recent strength being classified as a false move. The group remains above the 50-day moving average, which would come into play if support failed to hold.

Relative to the S&P 500

Materials remain neutral on a relative basis, but we give a slight tilt to the bulls as the ratio is above the 50-day moving average. A break of resistance would increase our confidence that they are taking a leadership position.

Financials

The Financials are also waging a battle with support at the breakout level as well as the rising 50-day moving average. If the group was going to reverse its recent pullback, this would be the logical spot for an advance to begin.

Relative to the S&P 500

The relative trend remains below the 50-day moving average as it tests important support. Holding here would keep the trend neutral; a breakdown points to a new trend of underperformance.

Industrials

The Industrial sector is the third in the group of cyclical sectors battling support at its breakout level.  The group remains above the rising 50-day moving average, keeping the bulls in command for now.

Relative to the S&P 500

The relative trend is testing support at the 2021 lows and is below the 50-day moving average. A breakdown would be a sign of further underperformance.

Energy

Energy is fighting to hold the 50-day moving average just below price-based support. If the group is going to rebound to resume the bullish trend, this is the place to dig in.

Relative to the S&P 500

The relative trend remains below resistance and has broken below the 50-day moving average. For now, the trend is neutral.

Consumer Staples

Consumer Staples has pulled back from the recent highs and is now testing support at the breakout level. Further weakness should find buyers near the 50-day moving average, around the 740 level.

Relative to the S&P 500

The relative trend continues to make new lows below the 50-day moving average.

Real Estate

The Real Estate sector is hovering near the recent highs and remains above important support provided by the 50-day moving average at the 295 mark. The bulls remain in control above this level. A breakdown would target the October lows.

Relative to the S&P 500

On a relative basis, the group is below the 50-day moving average, which is converging on price-based support. Until there is a break, Real Estate is an inline performer. This view is unchanged on the week.

Utilities

Utilities continue to trade in consolidation while holding above the 50-day moving average. The case can be made that there is an upside bias to the trend, but there is a clear resistance level that must be overcome before a stronger bullish case can be made.

Relative to the S&P 500

The relative trend remains bearish, below the declining 50-day moving average and near all-time lows.

Health Care

Health Care is breaking below short-term support but remains above the 50-day moving average. Below the moving average, the October lows are in play.

Relative to the S&P 500

On a relative basis, Health Care is trading at the lows of the year, below the steadily declining 50-day moving average.

Take-Aways:

There was a lot of talk about Growth lagging Value yesterday but putting it into perspective shows us that Growth remains the leader, and there is a clear line in the sand that alters this view. At the sector level, cyclicals have pulled back to test key support levels. If they are going to rebound, this is the spot. Utilities and Staples remain underperformers. Technology and Discretionary are taking a pause after strong runs.

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.