Key Points
- European Technology Leads the S&P 500
- Communication Services and Tech are the Best Groups in the U.S.
- Relative Trends are Weak for Cyclical Groups
- Defensive Sectors are Mostly Lagging
- Utilities are Showing Signs of Life, However
Chart in Focus
Though Europe is not generally known as a “tech hub” the S&P Europe 350 Information Technology Index is in a steady uptrend, above the rising 50-day moving average, and traded to a new high yesterday. This is a dynamic that is like what we are seeing in the U.S.
On a relative basis, the group is leading the S&P 500 as it trades above its own 50-day moving average and at a one-year high.
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 traded to a new high yesterday after holding above the rising 50-day moving average last week. Price-based support remains near the 2,600 level, above which the path of least resistance is to the upside.
Relative to the S&P 500
On a relative basis, Technology also held above the rising 50-day moving average and price-based support. The recent break of the highs from earlier this year sets the stage for an attack on the highs reached last September.
Consumer Discretionary
The Consumer Discretionary sector has broken below price-based support and the 50-day moving average as it trades in a consolidation.
Relative to the S&P 500
Communication Services
The Communication Services sector is trading at record highs, above the rising 50-day moving average. The group has support in the 255 – 260 zone. Above that level, the odds favor a continuation of the bullish trend.
Relative to the S&P 500
The relative ratio remains above support at the breakout level and the 50-day moving average after a successful test last week. Holding this support zone keeps the trend in favor of outperformance.
Materials
Materials remain above the 50-day moving average after holding support in July. The near-term trend remains a choppy consolidation after the strong rally from March 2020 until May of this year. Price-based support, near the 500 level, is the key to keeping the structure of the long-term uptrend in place.
Relative to the S&P 500
On a relative basis, the group remains below the declining 50-day moving average. The ratio continues to hold the relative support level that we have been highlighting but we want to see a move above the moving average to have confidence that a new trend of outperformance is taking hold.
Financials
The Financials are holding above the 50-day moving average after trading to a record high recently. Holding above the moving average keeps the ball with the bulls for now.
Relative to the S&P 500
On a relative basis, the group is holding above the 50-day moving average and support. Our thought that recent weakness was a false breakdown remains in place but is being tested as we write.
Industrials
The Industrials sector remains in a consolidation, oscillating around a flat 50-day moving average, just above price-based support.
Relative to the S&P 500
Energy
The Energy sector continues to trade in a range after a very brief break of support. Former support, at the 2019 lows, is current resistance. Support is at the peak from the initial rally from the March 2020 low. The 50-day moving average continues to move lower.
Relative to the S&P 500
On a relative basis, the ratio remains below the declining 50-day moving average and we move our price-based resistance level lower this week.
Consumer Staples
The Consumer Staples sector is above price-based support, which we move up to the 740 level this week, and the rising 50-day moving average, trading just below record levels on an absolute basis.
Relative to the S&P 500
While the absolute trend is bullish, the relative trend continues to be bearish. The ratio is on the declining 50-day moving average, trading near multi-year lows.
Real Estate
Real Estate traded to a record high last week and remains above support at the 285 level, which lines up with the rising 50-day moving average.
Relative to the S&P 500
On a relative basis, the group is testing the rising 50-day moving average as it trades between support and resistance. The uptrend from the early-2021 lows continues to stall.
Utilities
The Utilities sector has broken above near-term resistance and is threatening the highs that were reached prior to the pandemic. The group is above the rising 50-day moving average and has support at the 345 level.
Relative to the S&P 500
The relative trend continues to show signs of stabilization, trading above the 50-day moving average. A break of resistance would point to a trend of outperformance by this defensive group.
Health Care
The Health Care sector remains in a steady uptrend, above the rising 50-day moving average. Price-based support moves up to the 1,500 level this week, in line with the moving average.
Relative to the S&P 500
On a relative basis, the group is above the 50-day moving average, which is moving higher. The ratio is also above near-term support.
Take-Aways:
Groups that hold the largest Growth stocks (Technology and Communication Services) continue to show signs of outperformance. The cyclical groups are stalling on an absolute basis but are lagging relative to the S&P 500. Other than the Utilities, there is not much life in the defensive groups on a relative basis.