Take-Aways:
There is not much at the sector level that qualifies as a bullish absolute trend. Most groups are trading below the declining 50 and 200-day moving averages and are at/below key support levels. For investors who must maintain exposure to the U.S. equity market, the strategy remains centered on finding what is less bad. Health Care and Energy are clear outperformers. Staples and Utilities have taken a hit but are holding above key levels on a relative basis. Financials and Industrials are two groups to watch in the near term.
Visiting the Sector Relatives
Information Technology
The Technology sector traded to a new low for the cycle yesterday as it remains below the declining 50 and 200-day moving averages. The bears are in control of the trend.
Relative to the S&P 500
The relative trend remains below the 50-day moving average and has broken down from the consolidation zone to make a new low for the cycle. Underperformance is likely to persist.
Consumer Discretionary
The Consumer Discretionary sector trades below the 50 and 200-day moving averages as well as resistance near 1,210. The group has not yet tested the June lows, but we are hard-pressed to make a compelling bullish case until the 200-day moving average is reclaimed.
Relative to the S&P 500
On a relative basis, Discretionary remains in a consolidation. However, the ratio has recently moved below the 50-day moving average under price-based resistance. More time is needed.
Communication Services
The Communication Services sector remains below price-based resistance and the 50-day moving average, as it trades well below the declining 200-day moving average. The door remains open to a test of the COVID lows.
Relative to the S&P 500
The relative trend is below the 50-day moving average, trading near all-time lows.
Materials
The Materials sector remains below the 50 and 200-day moving averages as it continues to battle with price-based support near the June lows. There is scope for a near-term rally, but it will be countertrend in nature, given a large amount of overhead resistance.
Relative to the S&P 500
On a relative basis, the group is fighting with the 50-day moving average above price-based support to keep the trend neutral for now.
Financials
Financials are holding below the 50 and 200-day moving averages as they test support at the June lows and pre-COVID highs. The bulls need to recapture the 200-day moving average to make a stronger case.
Relative to the S&P 500
On a relative basis, the ratio is trading above support and the 50-day moving average. For investors who must be invested, this is a sector that remains less bad of late.
Industrials
Industrials remain below the 50 and 200-day moving averages but are holding support near the 720 level that we have been highlighting. Bulls need to retake the 200-day moving average to make a more compelling case.
Relative to the S&P 500
The relative trend has rallied from the 50-day moving average as it trades in a consolidation. The series of higher lows is an encouraging development, but resistance must be broken for the group to take a leadership position.
Energy
The Energy sector is trading above support and the 50 and 200-day moving averages. The near-term trend remains choppy, but there is an upside bias above the 530 level. A move below 470 negates the bull case.
Relative to the S&P 500
The group remains a leader with the ratio near recent highs above the 50-day moving average.
Consumer Staples
Consumer Staples is testing/holding support near the 690 level as they trade below the declining 50 and 200-day moving averages. If the bulls are going to make a stand to reestablish the sector’s defensive properties, this is the spot.
Relative to the S&P 500
The relative trend remains in a near-term consolidation but is holding above support and the rising 50-day moving average.
Utilities
Utilities remain below the declining 50 and 200-day moving averages as the group tests important price-based support in the 320-330 zone. The bulls must make a stand here to preserve the uptrend from the March 2020 lows.
Relative to the S&P 500
The relative trend is testing the rising 50-day moving average after being rejected at price-based resistance. Odds favor a resolution to the upside as the bullish trend since November is still in place.
Health Care
Health Care is trading in a price-based support zone below the declining 50 and 200-day moving averages. Below 1,390, the bears will take full control. The bulls need to start by reclaiming the 50-day moving average.
Relative to the S&P 500
The relative trend remains strong as Health Care has been a less bad sector of the market. The ratio is above the 50-day moving average after holding support and is on the verge of a new high.
Real Estate
Real Estate continues to cascade to the downside, below the declining 50 and 200-day moving averages. There is support near 210, but if that does not hold, the group could likely see the COVID lows.
Relative to the S&P 500
On a relative basis, the group has broken down, trading below the resistance and the 50-day moving averages. The early 2021 lows are in play.
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