In a Word,
“Sloppy”

by | Feb 8, 2022

Key Points

  • Growth Sectors Come Under Renewed Pressure
  • Cyclicals Are a Mixed Bag
  • Defensive Groups Search for a Clearer Direction
  • Energy Trades to Absolute and Relative Highs
  • Less Bad Is Good Enough for Financials

Visiting the Sector Relatives

Information Technology

On Tuesday and Wednesday last week, some follow-through buying brought the Technology sector to the 2,900-resistance level where sellers stepped in. The index remains below the declining 50-day moving average and is in a holding pattern between resistance and support at 2,600. Our view from last week remains in place; above 2,900, the bulls are in control; below 2,580, the bears have the upper hand.

Relative to the S&P 500

The relative trend is fading from the declining 50-day moving average but remains above price-based support. Until one of these levels is broken, the relative trend is neutral.

Consumer Discretionary

The Consumer Discretionary sector received a bit of a boost on Friday on the heels of a solid earnings report from AMZN, but it was not enough to break the index from the current trading range. Support is near 1,390, and resistance is near the 1,490 level. This plays out as the index is below the 50-day moving average and has been making lower highs and lower lows since the November peak.

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. This view is unchanged on the week.

Communication Services

A strong rally brought the Communication Services to the underside of the declining 50-day moving average before an earnings report from FB brought on the selling pressure once again. The series of lower highs since September remains in place while key support is near 230.

Relative to the S&P 500

Relative to the S&P 500, the group remains in a downtrend and has traded to a new 52-week low in the early going this week. The ratio is below the declining 50-day moving average, keeping the trend in favor of underperformance.

*Please see today’s Sector Deep Dive for a more granular view on this group.

Materials

Materials could not build on strength and have begun to fade below the declining 50-day moving average. Resistance moves down to the 545 level as the group remains in the consolidation that has defined trading since May of last year.

Relative to the S&P 500

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

Financials

Financials continue to trade in a sloppy consolidation, but the bulls have a slight edge as the group has reclaimed the 50-day moving average. However, we note that the moving average is flat. Holding above 680 would go a long way in establishing control for the bulls. 

Relative to the S&P 500

In the current environment, a sloppy absolute consolidation is enough to cause a relative breakout. The ratio has moved through resistance at the October peak and is holding above the rising 50-day moving average. It seems that “less bad” is “good enough” in the relative game.

Industrials

For the Industrial sector, the 2021 consolidation zone continues to define the trend. The group is below the declining 50-day moving average, but support at 830 remains in place. This is a battle that has yet to declare a clear winner.

Relative to the S&P 500

The relative trend is testing 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 at a 52-week high, well above support and the rising 50-day moving average. from a trend perspective, the only knock is that the group is extended from the moving average.

Relative to the S&P 500

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

Consumer Staples

Staples continues to battle resistance to attempt to secure a breakout that has remained elusive. The group is above the rising 50-day moving average, giving an edge to the bulls in the near term. This edge is maintained if stronger support at 760 holds.

Relative to the S&P 500

The relative trend also remains bullish in the short term. Stronger control would be established with a break of resistance. Pullbacks are likely to find support near the rising 50-day moving average.

Utilities

Utilities remain 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

The relative trend continues to have a slight upside bias as it trades above the rising 50-day moving average. However, breaking above resistance is required for the group to establish a leadership position.

Health Care

Health Care rallied back toward the 50-day moving average but has now stalled. The trend remains neutral, stuck in a range between support near 1,460 and resistance near 1,590. 

Relative to the S&P 500

On a relative basis, we continue to give a slight edge to the bulls as the ratio holds above the rising 50-day moving average. Taking out resistance would establish a leadership position.

Real Estate

Real Estate remains 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 below the 50-day moving average and has not been able to gain much upside traction.

Take-Aways:

With few exceptions (Energy and Communication Services), the word that best describes the absolute trends at the sector level is “sloppy.” There are many sloppy consolidations playing out. Some are above their 50-day moving averages; others are below. On a relative basis, Energy is a clear leader, though it is extended. Financials are also leading, a case of “less bad is good enough.” Growth sectors such as Technology, Discretionary, and Communication Services remain under relative pressure. Defensive sectors are searching for a clearer direction vs. the S&P 500.

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.