Key Points

  • Software Is Leading the Technology Sector
  • Bullish Trends: Technology, Discretionary, Energy, and Financials
  • Neutral Trends: Communication Services, Materials, and Industrials
  • Bearish Trends: Utilities and Staples
  • Improving: Real Estate and Health Care

Chart in Focus

Technology is strong, and Software is the leader. The S&P 500 Software Index has powered to new highs above the rising 50-day moving average. Support lines up with the moving average near 5,300 above these levels and the uptrend is likely to continue.

Relative to the broader Technology sector, Software is a clear leader after breaking prior highs. The rising 50-day moving average defines the trend.

Information Technology

The Technology sector has broken to new highs along with the major market averages in the U.S. The sector trades above the rising 50-day moving average with support at the breakout level near 2,800. Above this price point, the bulls are in control, and the uptrend is likely to persist.

Relative to the S&P 500

The relative trend remains just below the summer highs, above the 50-day moving average. A break of resistance would signal that Technology is reclaiming a leadership position. Losing support would point to further underperformance.

Consumer Discretionary

The Consumer Discretionary sector continues to climb after breaking out at the 1,500 level and trades well above the 50-day moving average. Much of the move had been powered by TSLA, up over 50% since October 1st.

Relative to the S&P 500

The trend of outperformance that we began to highlight two weeks ago in this note remains in place, taking out the next short-term resistance level. Regardless of what is driving the price action for the group, this is now a leader with room to run on a relative basis.

Communication Services

The Communication Services sector remains below the declining 50-day moving average despite a broad rally in the equity market. Support is at the 265 level. Between this point and the moving average, the trend is neutral and uninteresting.

Relative to the S&P 500

The relative ratio remains below the declining 50-day moving average as it tests support. This is a level that must hold, or the January lows are likely to be tested.

Materials

The Materials sector is holding above the downtrend line and the 50-day moving average as it tries to break the consolidation that has been in place since May. For now, the bulls have a slight edge, but we want to see new highs before we can have confidence that a strong uptrend is in play.

Relative to the S&P 500

On a relative basis, Materials are neutral at best. The ratio is below the declining 50-day moving average but above price-based support. It is hard to get excited about this group until the interim peak from August is broken.

Financials

The Financials have begun to stall after a strong move to the upside that led to a breakout in October. Price and moving average support are in the 640 – 650 range; above these levels, the bulls are in control. 

Relative to the S&P 500

The relative trend is also holding above price and moving average support but appears to be losing some upside momentum. We give the benefit of the doubt to continued outperformance but want to see the May highs broken soon.

Industrials

The Industrial sector continues to knock on the door of a breakout, but thus far, there has not been an answer. The index is above the 50-day moving average, so a slight edge belongs with the bulls. A break of support at 830 turns the trend bearish. 

Relative to the S&P 500

The relative trend is sitting on support below the declining 50-day moving average. There are early signs of stabilization, but we need to see more before we can become excited here.

Energy

Last week we highlighted that the Energy sector was extended from the 50-day moving average. The index has begun to take a breather after a strong run from the September lows. Support in the 410 – 420 zone remains the key level to watch; above that, the bulls have the ball.

Relative to the S&P 500

The relative trend continues to pause at resistance while remaining above the rising 50-day moving average. Energy bulls want the resistance zone to be overcome quickly to have confidence that leadership will continue.

Consumer Staples

The Consumer Staples sector is holding price-based support and the 50-day moving average but remains in a consolidation. Above 730, the bulls have an edge, but the trend here is neutral.

Relative to the S&P 500

The relative trend remains bearish, trading near 20-year lows and below the declining 50-day moving average.

Real Estate

After a strong rebound, the Real Estate sector is running into resistance at the prior highs. Above the 50-day moving average and support at 290, the bulls are in charge, but we want to see a break to new highs to have confidence that this is not a slow topping process.

Relative to the S&P 500

On a relative basis, the group continues to dance with the 50-day moving average while holding important price-based support. This level should be watched closely. Until there is a break in either direction, we would expect the group to be an inline performer.

Utilities

After a strong move from support in the 320 – 325 zone, Utilities are stalling at the 50-day moving average to remain in a broad, sloppy consolidation.

Relative to the S&P 500

The relative trend remains bearish, below the declining 50-day moving average.

Health Care

Health Care continues to heal. After holding support at 1,460, the group has moved through the 50-day moving average and is positioned to attack the prior highs.

Relative to the S&P 500

On a relative basis, Health Care remains weak. The short-term rebound that we called out last week is beginning to revere below the 50-day moving average.

Take-Aways:

The three major markets in the U.S., the S&P 500, NASDAQ Composite, and Russell 2000, are trading at all-time highs. Joining the averages from the sector level are Technology, Discretionary, Financials. Energy remains strong, but it is hard to become excited about Materials and Industrials until we see some improvement. Defensive groups remain weak on a relative basis, a bonus for equity bulls. With stocks at all-time highs, it pays to follow the leaders.

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.