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Key Points

  • Technology and Communication Services Remain Leadership
  • Health Care is on the Verge of Joining the Outperforming Groups
  • Key Tests Loom for Materials and Financials
  • Staples are Strong on an Absolute Basis; Weak Relative
  • Utilities Build a Relative Base

Chart in Focus

On an absolute basis, the S&P 500 Health Care Equipment and Supplies Index has had an impressive run of late. The group is trading at record levels above a steadily rising 50-day moving average. In fact, the only bearish technical argument that can be made is that price is somewhat extended (green arrow) above this measure of trend.

Despite the extended nature of the absolute trend, we note that a relative trend of outperformance may be just getting started. The ratio broke above resistance last week and is above the rising 50-day moving average. Holding above the breakout level favors a continuation of leadership.

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

The Technology sector remains in a steady uptrend, above the rising 50-day moving average which is likely to provide support to near-term pullbacks. Price-based support remains in the zone between 2,600 and 2,650. Holding above this zone keeps the structure of the uptrend in place.

Relative to the S&P 500

On a relative basis, Technology continues to grind to the upside. A break of the February highs would open the door to a test of the level that was reached in September of last year.

Consumer Discretionary

The Consumer Discretionary sector remains in a consolidation but is holding above the 50-day moving average. Near-term support is in the 1,370 – 1,400 zone. Resistance is near the highs that were reached in July. We continue to look for a confirmed break in either direction to determine the prevailing trend.

Relative to the S&P 500

On a relative basis, the trend remains clearly bearish. The ratio is below the declining 50-day moving average and is having a hard time breaking above near-term resistance.

Communication Services

The Communication Services sector traded to a record high once again last week before pulling back slightly. Near-term support moves up to the 280 level. Below that, the rising 50-day moving average is near 270 and has been a steady guide to the trend for most of 2021.  

Relative to the S&P 500

The relative ratio also traded to a new high last week and remains above the breakout level. The 50-day moving average is moving to the upside and the group remains one of the best performers in the S&P 500.

Materials

Materials continue to trade in the consolidation that we have been highlighting for the past few weeks. The group is above the 50-day moving average which has also been shifting between rising and falling over the past few months. Support is near the 490 level; resistance is near the May highs.

Relative to the S&P 500

On a relative basis, Materials were once again unable to break above the declining 50-day moving average. The group is now in the process of testing relative support, a break of which would likely accelerate the trend of underperformance.

Financials

The Financials are above the 50-day moving average but have been unable to achieve a sustained breakout to new highs. This keeps the group in a consolidation with support near 580 and resistance near 650. 

Relative to the S&P 500

On a relative basis, the Financials are in the process of breaking below the 50-day moving average and price-based support. We have been of the view that a “false breakdown” was in play but holding below support will negate that view and open the door to further underperformance.

Industrials

There is absolutely nothing new to say about the Industrials sector. The group remains in a consolidation above the 50-day moving average and support the 830 level.

Relative to the S&P 500

On a relative basis, the group continues to move to the downside, trading below a declining 50-day moving average. The next support level is near the January lows.

Energy

The Energy sector also remains in a consolidation. However, in this case, the group is below the declining 50-day moving average. Support at the 350 level is currently in play and a move below would set the stage for further downside.

Relative to the S&P 500

On a relative basis, the ratio remains below the declining 50-day moving average and resistance, keeping the odds in favor of underperformance.

Consumer Staples

The Consumer Staples sector is making another push toward record levels after successfully holding price-based support at the 740 level which includes the rising 50-day moving average.

Relative to the S&P 500

Despite a bullish absolute trend, the relative trend remains bearish. The ratio is trading below the 50-day moving average, near levels that were last seen in 2001.

Real Estate

Real Estate is holding near record levels and made a strong move to the upside last week. The 50-day moving average has been a good guide for the uptrend and we are moving price-based support up to the 290 level, from 285, this week.

Relative to the S&P 500

On a relative basis, the group has retaken the 50-day moving average as it remains in a near-term consolidation. Overhead resistance is now being tested and must be overcome to keep Real Estate in a leading position.

Utilities

Thus far, the Utilities sector has held the price-based support level that we called out last week. The group is above the rising 50-day moving average and is close to testing the highs that were reached prior to the COVID breakdown.

Relative to the S&P 500

The relative trend for Utilities is the same as it was last week. The ratio is holding above the 50-day moving average as a base is being built. However, until resistance is broken to the upside, the benefit of the doubt remains with the bearish trend.

Health Care

The Health Care sector is on the verge of trading to another new high as the uptrend is firmly in place on an absolute basis. Support near the 1,530 level holds the rising 50-day moving average which has done a good job of defining the trend.

Relative to the S&P 500

On a relative basis, Health Care tested and held the rising 50-day moving average and price-based support. The ratio continues to make the slow turn to the upside as it is establishing itself as a market leader.

Take-Aways:

The Technology and Communication Services sectors remain the best games in town this week, while Health Care continues to make steady improvement on a relative basis. Materials and Financials are two cyclical groups that are nearing important tests of relative support. Their reactions at these key levels will be important in determining if they can regain leadership positions. Defensive groups are mixed with Real Estate on the verge of a relative breakout, Utilities building a relative base, and Staples trading near 20-year relative lows.

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.