For Leadership,
Less Bad is Good Enough

by | Mar 8, 2022

Key Points

  • Energy and Utilities Are Absolute and Relative Leaders
  • Defensive Groups Are Outperforming
  • Growth-Focused Sectors Break Down
  • New Relative Lows for Communication Services
  • Health Care Spikes to a New Relative High

Visiting the Sector Relatives

Information Technology

The Technology sector has broken below support at the 2,600 level as it trades below the 50 and 200-day moving averages. Yesterday marked the lowest closing price of the current drawdown. Resistance moves down to 2,700 while the area of importance for the bulls is near 2,500.

Relative to the S&P 500

The relative trend has also broken below support and remains below the declining 50-day moving average.

Consumer Discretionary

The Consumer Discretionary sector has seen a short-term rally fade and turned into a breakdown below the 50 and 200-day moving averages. The 2021 lows are now in play should weakness persist.

Relative to the S&P 500

On a relative basis, Discretionary has broken price-based support while trading below the declining 50-day moving average.

Communication Services

The Communication Services sector remains below the declining 50 and 200-day moving averages, keeping the trend bearish. Adding to the bearish argument is the fact that the group has broken below the 230 level, opening the door to a move 215 in the near term.

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 has made a new one-year low.

Materials

Materials have broken support at the 510 level, below the declining 50 and 200-day moving averages. The next important area for the bulls to defend is near 490.

Relative to the S&P 500

On a relative basis, Materials remain neutral, stuck between the rising 50-day moving average and price-based resistance. The relative trend is an example of benefitting by being less bad.

Financials

Financials have cut below the 200-day moving average while remaining below the 50-day moving average. Support comes into play the lower bound of the 2021 consolidation zone at the 580 level.   

Relative to the S&P 500

On a relative basis, the group continues to fade from resistance and has broken below the 50-day moving average. The ratio is now in a neutral trend.

Industrials

Industrials continue to wrestle with support at the 830 level, closing slightly below it yesterday. The group is below the declining 50 and 200-day moving averages, levels that must be regained for the bulls to take control of the trend.

Relative to the S&P 500

The relative trend has broken above resistance, and the 50-day moving average is beginning to turn higher. Another case of less bad being good on a relative basis.

Energy

Energy traded higher again this week and remained the strongest sector of the S&P 500. The group is well above the rising 50 and 200-day moving averages. Short-term support moves up to 530.

Relative to the S&P 500

The relative trend also remains strong, trading at a 52-week high, above the 50-day moving average.

Consumer Staples

Staples are in a holding pattern between the 50 and 200-day moving averages. The moving averages line up with important price-based support and resistance levels. 

Relative to the S&P 500

In yet another case of less bad being good enough, the relative trend remains in a leadership position, above the rising 50-day moving average and on the verge of a new 52-week high.

Utilities

Utilities have continued their sharp rebound above the 200-day moving average over the past week, recapturing the 50-day moving average and taking out the key 355 level. This puts the bulls in control of a trend that is on the cusp of trading to a new high.

Relative to the S&P 500

The relative trend has broken higher, putting the group in a leadership position as it trades above the rising 50-day moving average.

Health Care

Health Care remains trapped in a consolidation zone, below the moving averages, with support near 1,460. Bulls want to see the 1,590-level regained to set the stage for a run to new highs.

Relative to the S&P 500

On a relative basis, the ratio is above the rising 50-day moving average and has finally scored a breakout to obtain a leadership position. Once again, less bad is good enough.

Real Estate

Real Estate remains in a consolidation zone between 280 and 305 after briefly trading below support. The group is below the 50 and 200-day moving averages, which must be overcome before a strong bullish case can be made. 

Relative to the S&P 500

On a relative basis, the group has rebounded above the 50-day moving average and is on the verge of breaking to a new high.

Take-Aways:

For investors who must maintain an allocation to equities, there are only two sectors that have strong absolute trends (Energy and Utilities). Away from these two sectors, the key to finding leaders is focusing on the groups that are “less bad.” These include Real Estate, Staples, Health Care, and Industrials. Absolute and relative weakness remains in the growth-centric pockets of the market, namely Technology, Discretionary, and Communication Services.

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.