Focus on the Best
Relative Trends

by | Feb 1, 2022

Key Points

  • Growth Sectors Try to Rebound, but There’s Still So Much to be Done
  • Cyclicals Were Not Immune Last Week
  • Defensive Groups Provide a Port in the Storm
  • Energy Trades Back to 52-Week Highs
  • Discretionary Tests Relative Lows

Visiting the Sector Relatives

Information Technology

A two-day surge has brought the sector back toward broken support at the 2,900 level. The index remains below the declining 50-day moving average. For now, there is a range that defines the trend as neutral. Above 2,900, the bulls regain control. Below 2,580, the bears are on top.

Relative to the S&P 500

The relative trend is rallying back toward the declining 50-day moving average, a break of which is needed in order t have confidence that the group is regaining a leadership position.

Consumer Discretionary

Consumer Discretionary is another battered group that has staged a sharp rebound over the past two days. Like Technology, Discretionary is in a neutral range between support at Monday’s lows and resistance at the 1,490 level. This zone plays out below the declining 50-day moving average.

Relative to the S&P 500

On a relative basis, Discretionary is trying to bounce from the 2021 low but remains below resistance and the declining 50-day moving average.

Communication Services

Communication Services has also staged a move to the upside after breaking a key support level. The group remains below the declining 50-day moving average. We would like to see the 255-level cleared as the first step in the healing process.

Relative to the S&P 500

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

Materials

Materials remain below a confluence of resistance at the breakout level, the rising trend line, and the 50-day moving average. However, the low end of the 2021 range has not been breached. While there is room to rally, it would be suspect until the 560 level is broken.

Relative to the S&P 500

On a relative basis, Materials remain neutral, hovering around the 50-day moving average but below price-based resistance.

Financials

Financials remain a sloppy mess below the declining 50-day moving average but holding within the 2021 range. Retaking the 650 level would set up a compelling opportunity; below that level, there is a grudge match between the bulls and bears.

Relative to the S&P 500

The relative trend is also in a sloppy consolidation. Breaching the October highs would get our attention. We do note that the group was an outperformer during much of January’s selling pressure.

Industrials

The Industrial sector continues to hold support at the bottom of the 2021 range while trading below the declining 50-day moving average. The index remains in the consolidation zone.

Relative to the S&P 500

The relative trend has checked back to the flat 50-day moving average. We would like to see a move above resistance to signal that it is taking a leadership position.

Energy

The Energy sector is trading back near 52-week highs. The group is above support at 450 and the rising 50-day moving average.

Relative to the S&P 500

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

Consumer Staples

Staples are fighting to reclaim the breakout level, with stronger support at 760. The group is above the rising 50-day moving average, keeping the bulls in control.

Relative to the S&P 500

The relative trend also remains bullish. This defensive sector did its job as stocks sold off. A break of resistance will establish it as a leader.

Utilities

Utilities are in a sloppy consolidation below resistance, oscillating around the rising 50-day moving average. The trend is bullish above 354.

Relative to the S&P 500

A sloppy consolidation was good enough for outperformance last week as this defensive sector provided a port in a storm. The ratio is above the rising 50-day moving average, and a break of resistance will establish a leadership position.

Health Care

Health Care remains in the neutral camp for now but with the potential to rally back to the declining 50-day moving average.

Relative to the S&P 500

On a relative basis, Health Care remains sloppy, but we will give a slight edge to the bulls if it is above the 50-day moving average.

Real Estate

Real Estate is in a consolidation zone between 280 and 305 as it trades below the declining 50-day moving average. This keeps the trend neutral until there is a break.

Relative to the S&P 500

On a relative basis, the group is hugging a rising 50-day moving average. There is a slight upside bias as a slow rounding process plays out.

Take-Aways:

When selling pressure grips in the market, it is often helpful to identify the sectors that held up the best on a relative basis. Over the past week, defensive groups such as Staples provided a “port in the storm,” but they need to do more if they want to lead. Cyclical sectors were not immune to the selling pressure, but they did not sustain the damages that were felt in growth sectors. With trends sloppy across the board, except for Energy, a focus on the relative trends is key for those who must maintain equity exposure.

 

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.