Leadership is
Up for Grabs

by | Feb 15, 2022

Key Points

  • Growth Sectors Remain Stuck in Neutral
  • Cyclicals Are Mixed
  • Defensive Groups Fail to Take Advantage of Volatility
  • Energy Likely Needs a Breather in the Short Term
  • Industrials Sit on a Key Level

Visiting the Sector Relatives

Information Technology

The technology sector remains in the holding pattern that we laid out last week, between support at 2,600 and resistance near 2,900. That resistance point lines up with the declining 50-day moving average. Between these two levels, it is a grudge match with both the bulls and the bears fighting for control and keeping the trend neutral.

Relative to the S&P 500

The relative trend is also neutral, in a holding pattern between support at the October 2021 lows and the declining 50-day moving average.

Consumer Discretionary

The Consumer Discretionary sector has support at the 1,390 level and resistance near 1,490 as the group tries to stabilize after a steep decline from the 2021 highs. Price remains below the declining 50-day moving average, which we want to see broken to the upside to be confident that the bulls have taken control.

Relative to the S&P 500

On a relative basis, Discretionary is trying to bounce from the 2021 low but remains below the declining 50-day moving average. Until that level is breached, it is hard to argue that this will be a leading sector.

Communication Services

the Communication Services sector is beginning to stabilize near support at the 230 level as it remains below the declining 50-day moving average. This sets the stage for a possible countertrend rally back to the moving average.

Relative to the S&P 500

Relative to the S&P 500, the group remains in a downtrend, below the declining 50-day moving average. Below this measure of trend, the bears remain in control of the relative game.

Materials

Materials remain in the consolidation that has been in place since last April, below resistance and the declining 50-day moving average. The trend is neutral until these levels are breached. Should near-term weakness persist, there is support at the January lows.

Relative to the S&P 500

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

Financials

Financials have pulled back to test support at the rising 50-day moving average after failing to hold above the breakout level for the second time this year. This keeps the group in a neutral trend on an absolute basis.   

Relative to the S&P 500

On a relative basis, the group remains a leader, holding above the breakout level and the rising 50-day moving average.

Industrials

Industrials are testing support at the lower end of the consolidation zone, below the declining 50-day moving average. If there is going to be a rebound, this is a logical place for one to begin. From there, we would want to see a break above the moving average to have confidence that it will continue.

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 remains near 52-week highs, extended from the rising 50-day moving average. It would not be a surprise to see a pause in the strong bullish trend that has been in place for most of 2022. Should the group begin to fade from here, we look for the moving average to provide a level of support.

Relative to the S&P 500

The relative trend is also strong, trading at a 52-week high, above the 50-day moving average. We would expect a pullback to find support near the moving average.

Consumer Staples

Thus far, Staples have failed at resistance, unable to break and maintain new highs. The bulls keep the benefit of the doubt if the price is above 760, a level that is more likely to be tested now that the 50-day moving average has been broken.

Relative to the S&P 500

The relative trend is stalling below resistance but above the rising 50-day moving average. Breaking resistance would increase the odds of continued leadership.  

Utilities

Utilities have lost the 354 level that we highlighted last week, moving the group into a neutral trend below the moving average.

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. This view is unchanged from last week.

Health Care

Health Care has pulled back from the 50-day moving average after stalling there last week. 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. However, this is a low conviction view. 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 eyes for the 2021 support level.

Take-Aways:

At this point, leadership is up for grabs below the surface of the S&P 500. Defensive groups have failed to take advantage of increased volatility, arguably a datapoint that favors the bulls. However, we have yet to see a meaningful rotation back into the growth sectors. Cyclicals remain a mixed bag. Energy is a clear leader but likely needs a breather. Industrials are sitting on a key level.

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.