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Key Points

  • Increasing Bullish Participation in the Energy Sector
  • Technology Fails to Break Relative Resistance
  • Health Care Begins to Fade, the 50-Day Moving Average is Key
  • The Bullish Relative Trend in Communication Services Continues to Hold
  • Industrials Find the Relative Support Level, Will They Hold?

Chart in Focus

Below, we highlight improvement in the absolute trend for the Energy sector after the group held an important support level. It is interesting to note that this improvement is playing out with increased participation to the upside. When we look at the percentage of stocks in the Energy sector which are trading above their respective 50-day moving averages, we can see this metric has rebounded from zero for much of July and August to 50% currently. The percentage trading above their respective 200-day moving averages has moved from ~30% in August to 72% currently.

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 is pulling back from record levels but remains in an uptrend above the rising 50-day moving average, which is likely to provide support near the 2,700 level. Above this measure of trend, the path of least resistance is to the upside.

Relative to the S&P 500

The relative trend also remains above the 50-day moving average but is having a hard time breaking above resistance to stage an attack on the highs that were reached last September. We are closely watching trading in the near-term to get a sense for how this trend will unfold from current levels.

Consumer Discretionary

The Consumer Discretionary sector is testing the 50-day moving average once again as the index trades in the consolidation that has been in place since April. The price-based support near 1,400 is the key to keeping the long-term uptrend in place.

Relative to the S&P 500

On a relative basis, the trend remains bearish as the ratio tests the declining 50-day moving average from below. Until the series of lower highs and lower lows is broken it is hard to make the case for outperformance on the part of Discretionary.

Communication Services

The Communication Services is pulling back from record highs but remains in a steady uptrend, above the rising 50-day moving average. Near-term support is at the 280 level.

Relative to the S&P 500

The relative ratio continues to trade near the recent highs, above the rising 50-day moving average. The uptrend from the early 2021 lows is intact and leadership is likely to persist if the moving average continues to hold.

Materials

The Materials sector is testing the 50-day moving average within the context of the ongoing consolidation. Support is near the 490 – 500 zone which keeps the longer-term trend to the upside. Resistance is near the May 2021 highs.

Relative to the S&P 500

On a relative basis, Materials remain below the declining 50-day moving average as the ratio tests support. A break of support would signal further underperformance for the group. A move above the interim, August, high would be a sign that the relative trend is improving.

Financials

The Financials are above the 50-day moving average, which acted as support to last week’s pullback, 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 dancing with the 50-day moving average as the ratio holds above important support. A break above the August high would put the group in position to resume its trend of outperformance that began last November.

Industrials

The Industrials sector remains in a consolidation above support at the 830 level, but below the flat 50-day moving average.

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 group is now testing the relative support level, at the January lows, that we have been highlighting for the past few weeks.

Energy

The Energy sector has held price-based support near 350 and is now testing the declining 50-day moving average from below. A break above the moving average would be a sign that the current activity is a short-term bottoming process and would open the door to an attack on the June highs.

Relative to the S&P 500

On a relative basis, the ratio remains below the declining 50-day moving average and resistance. Until these levels are overcome, the group is likely to continue to underperform.

Consumer Staples

The Consumer Staples sector is holding above the rising 50-day moving average and price-based support near the 740 level. 

Relative to the S&P 500

The relative trend remains bearish, as it has been for months. The ratio is trading below the 50-day moving average, near levels that were last seen in 2001.

Real Estate

Real Estate is pulling back from record highs to test support at the rising 50-day moving average. The uptrend that began with a breakout in March remains in place if price holds above the 290 mark.

Relative to the S&P 500

On a relative basis, the group is testing the 50-day moving average from above after failing to take out overhead resistance.

Utilities

The Utilities Sectors is pulling back to test support after a breakout, making the trading action in the next few days important. Holding support will set the stage for a continuation higher in price. A break of support will point to a false breakout and a potential test of the rising 50-day moving average.

Relative to the S&P 500

The relative trend continues to hold support at the 50-day moving average but has not been able to make much upside progress despite the S&P 500 being down in five of the last six sessions.

Health Care

The Health Care sector has pulled back sharply from the recent highs and is now testing the rising 50-day moving average that has defined the uptrend for much of 2021. Thus far, short-term support at 1,530, which we called out last week, is holding.

Relative to the S&P 500

On a relative basis, Health Care is moving below the 50-day moving average and the support level that we have been highlighting. Absent a quick rebound, the April lows will be in play.

Take-Aways:

Leading groups have pulled back from recent highs, along with the broader market, over the past week. However there has not been much, if any, damage done to the longer-term trends. Technology continues to face a strong relative test while Health Care is beginning to show signs of losing the battle to shift to a bullish trend of outperformance.

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.