fbpx

Key Points

  • Clean Breakout for Technology Hardware & Equipment
  • Information Technology and Communication Services Continue to Lead
  • Discretionary Tests a Key Relative Level
  • Cyclical Sectors Hold Up on an Absolute Basis
  • Defensives are Mostly Laggards

Chart in Focus

The S&P 500 Technology Hardware & Equipment Index made a decisive break to a new absolute high yesterday after consolidating since the middle of July. The index is above the rising 50-day moving average and there is price-based support near the 2,900 level.

On a relative basis, the group is in the process of moving higher from the rising 50-day moving average and is well positioned to break from the near-term consolidation. Should a break take hold, the early 2021 highs are the next likely target.

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 another new high yesterday and the 50-day moving average continues to steadily move to the upside. Price-based support is in the zone between 2,600 and 2,650, above this level, the trend to the upside is likely to remain in place.

Relative to the S&P 500

On a relative basis, Technology is also above the rising 50-day moving average as it sets its sights on the peak that was reached in February of this year. This is the last hurdle before attacking the high from September 2020.

Consumer Discretionary

The Consumer Discretionary sector remains in a consolidation, dancing with the 50-day moving average and the breakout level. We continue to look for a clean break in either direction to have confidence that a new trend is beginning.

Relative to the S&P 500

On a relative basis, Discretionary is below the declining 50-day moving average and is now testing broken support at the June low. Until the moving average is overcome, odds favor a continuation of the bearish relative trend.

Communication Services

The Communication Services sector traded to a new high yesterday as the textbook uptrend above the rising 50-day moving average continues to play out. Near-term support moves up to the 270 level, in line with the moving average. 

Relative to the S&P 500

The relative ratio traded to its highest level since 2017 after a rebound from support and the rising 50-day moving average. Odds favor a continuation of leadership on the part of this group.

Materials

Materials remain above the 50-day moving average. The current trend is 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 after trying to break through last week. 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 above the 50-day moving average and have been threatening a breakout of late. Support is near the 585 level and above this mark the advantage tilts in favor of the bulls, but we want to see a break to new highs to solidify that the uptrend is resuming.

Relative to the S&P 500

On a relative basis, the group is holding above the 50-day moving average and support. Above these levels, our false breakdown view remains in place.

Industrials

The Industrials sector remains in a consolidation after a successful test of the 50-day moving average. Above price-based support at the 830 level keeps the uptrend from the March 2020 lows in place.

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 remains in a clearly defined range and below the declining 50-day moving average. Until there is a confirmed break in either direction, the absolute trend is best described as sloppy and sideways.

Relative to the S&P 500

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

Consumer Staples

Staples are trying to rebound after a test of price-based support at the 740 level, just above the rising 50-day moving average. Above this mark, there is a good chance that new record highs will be seen in the near-term.

Relative to the S&P 500

While the absolute trend is bullish, the relative trend continues to be bearish. The ratio is below the declining 50-day moving average, trading near multi-year lows. This view is unchanged from last week.

Real Estate

Real Estate traded to another record yesterday as the uptrend from the March 2020 lows continues. The 50-day moving average is in line with price-based support near the 285 level.

Relative to the S&P 500

On a relative basis, the group remains below the 50-day moving average. Despite a strong absolute trend, we are hard pressed to get excited about this group until relative resistance is broken.

Utilities

After a break from the consolidation that began last November, Utilities are pulling back slightly to test the breakout level. Price remains above the rising 50-day moving average and the door to the pre-COVID highs remains open for now.

Relative to the S&P 500

The relative trend is testing the 50-day moving average as it continues to build a base. However, it would take a break of resistance to convince us that a new, bullish, trend is taking hold.

Health Care

The Health Care sector is in the process of pulling back slightly after a move to record highs last week. The group is above support and the rising 50-day moving average, keeping the uptrend in place.

Relative to the S&P 500

On a relative basis, Health Care is pulling back to test the 50-day moving average after a breakout that we thought was promising just a few weeks ago. At the same time, relative support is being tested as well. Holding these levels will be important if this group is going to take a leadership role.

Take-Aways:

Last week we wrote that the best-looking groups were Technology and Communication Services. That remains the case this week as leaders tend to continue leading. It is encouraging to see the cyclical sectors holding up on an absolute basis (as this helps breadth metrics improve) but we can’t call them leadership on a relative basis. Finally, we can see that defensive sectors are trading well on an absolute basis but are mostly in relative downtrends, a bullish dynamic for the overall equity trend.

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.