Defense is the Name
of the Game

by | Apr 12, 2022

Key Points

  • Technology & Discretionary Fail to Breakout; Now Heading Lower
  • Communication Services Continue to Bleed Out
  • Materials and Energy Are Cyclical Leadership
  • Financials and Industrials are Lacking
  • Defensive Groups Speak to the Risk-Off Tone in the Market

Visiting the Sector Relatives

Information Technology

After failing to break 2,880, the Technology sector has quickly sliced below the 50 and 200-day moving averages. This keeps the bears in control of the trend with eyes to the March lows. Below that level, it would not be a surprise to see an acceleration to the downside.

Relative to the S&P 500

The relative trend has broken below the 50-day moving average and support after failing to take out the February highs.

Consumer Discretionary

The Consumer Discretionary sector has also sliced through the 50 and 200-day moving averages after failing to break resistance. Below the 50-day moving average, the door is open to a move to the March lows.

Relative to the S&P 500

On a relative basis, Discretionary has broken below the 50-day moving average after failing to clear resistance.

Communication Services

Communication Services stocks are moving lower once again, failing to build on the bear market bounce from the March lows. The index is below the 50 and 200-day moving averages, and the bears are looking to press the issue with a moving back to support.

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 and near one-year lows.

Materials

Materials continue to stall above the moving average and price-based support. Our view from last week is unchanged; breaking above the January highs could be the start of a new bullish trend.       

Relative to the S&P 500

On a relative basis, bulls are taking advantage of the slight edge that we gave them last week. The ratio is moving higher from the rising 50-day moving average after breaking above resistance.

Financials

Financials remain in a consolidation zone, above the 580 level but below the 2021 highs. The index is holding below the 50 and the 200-day moving averages. The trend remains solidly neutral.

Relative to the S&P 500

On a relative basis, the group remains in a choppy consolidation, but a downside bias remains as the ratio holds below the declining 50-day moving average.

Industrials

Industrials remain in a neutral position, stuck in a consolidation that has been in place for a year. There is a small edge developing for the bears as the index has moved below the 50 and 200-day moving averages. A break of the 830 level would put the bears in control of the trend.

Relative to the S&P 500

The relative trend is holding below the declining 50-day moving average, keeping the January lows in play.

Energy

The trend in energy remains bullish, with the price above the rising 50 and 200-day moving averages. Recent price continues to be viewed as a pause after a strong run. Pullbacks are likely to find support in the 530-560 zone.

Relative to the S&P 500

The relative trend also remains above the 50-day moving average but is consolidating after a strong move since the start of the year. The group retains a leadership position until this trend shows signs of reversing.

Consumer Staples

Staples traded to a new high yesterday, above the rising 50 and 200-day moving averages. Near-term support develops at the 810 level.

Relative to the S&P 500

The relative trend has also surged to new highs after quickly retaking the 50-day moving average and resistance. Holding these two levels puts the group in a leadership position.

Utilities

After a powerful run that saw Utilities trade to a new high on Friday, the group was hit with some profit-taking yesterday. Arguably, the sector is extended from the 50 and 200-day moving averages as well as price-based support.

Relative to the S&P 500

The relative trend is bullish, above the rising 50-day moving average and price-based support. The ratio has made a new high, confirming the absolute highs on Friday.

Health Care

Health Care continues to trade above the breakout level and the rising 50 and 200-day moving averages. Last week we wrote that the door was open for an attack on the highs, and that has played out. The bulls are in control above 1,590.

Relative to the S&P 500

On a relative basis, the ratio has exploded to the upside after holding support at the rising 50-day moving average, allowing the bulls to capitalize on the edge that we gave them last week.

Real Estate

Real Estate bulls keep the ball above the 300 level and the rising moving averages.

Relative to the S&P 500

On a relative basis, the group is breaking out of the consolidation above the rising 50-day moving average.

Take-Aways:

The defensive pockets of the S&P 500 continue to garner the most attention, with many breaking to a new high on an absolute and/or a relative basis. Growth sectors have come under renewed pressure and are seemingly not ready to improve. The cyclical groups remain a mixed bag with an edge going to the commodity sectors such as Energy and Materials. 

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.