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Take-Aways:

With the exception of Real Estate, defensive sectors have perked up to outperform on a relative basis as the market-wide selling pressure has increased over the past several trading sessions. The largest S&P 500 sector weight–Technology—faces a key test of support at the June lows. Energy and Utilities have had their uptrend threatened as both trades below rising 200-day moving averages, but this has been an early development.

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Visiting the Sector Relatives

Information Technology

The Technology sector is testing the June lows at the 2,150 zone below declining 50 and 200-day moving averages after the sector was not spared from recent market selling pressure. The bulls want to see this level held to the upside.

Relative to the S&P 500

The group has held relative support to the upside at the lower end of the relative trading channel but remains below the ratio’s declining 50-day moving average. The bias is with the bears here.

High Beta / Low Volatility chart for March 25th research.

Consumer Discretionary

The Consumer Discretionary sector has broken long-term support at the 1,200 zone over the past week of trading with the June lows at the 1,045-zone set in its sights. The bulls want to see the June lows hold as this sector is a proxy for equity risk appetite. 

Relative to the S&P 500

Relative performance faces a key test as the ratio gave up ground and is testing its rising 50-day moving average from above but continues to remain below long-term relative resistance at the highlighted zone. 

Discretionary / Staples (EW) chart for March 25th research.

Communication Services

The Communication Services sector continues to remain below long-term resistance at the 195 zone and well below declining 50 and 200-day moving averages as the bearish trend continues.

Relative to the S&P 500

The series of lower relative highs and lower relative lows defines the downtrend in underperformance for this space as the group struggles to gain a material foothold in the selling pressure.

Lumber / Gold chart for March 25th research.

Materials

Materials have sold off to test long-term support at the 420 zone and the October and November highs from 2020, leaving this sector a flat performer for nearly over two years.

Relative to the S&P 500

The group is testing long-term relative resistance at the highlighted zone below the ratio’s flat 50-day moving average as the sector attempts to gain a relative foothold. The bulls want to see this relative level held to the upside.

Copper / Gold chart for March 25th research.

Financials

Financials are testing the June lows at the 505 zone, well below declining 50 and 200-day moving averages. The bulls will look for stabilization at these levels, while the bears await a breakdown.

Relative to the S&P 500

The group continues to be an in-line relative performer at best, holding above long-term relative support at the highlighted zone.

Small Caps / Large Caps chart for March 25th research.

Industrials

The Industrials sector is testing both the June lows at the Q4 2020 upside gap at the 710 zone, and it will likely be a critical level to hold in the upcoming weeks of trading. Declining 50 and 200-day moving averages lend credence to the bears.

Relative to the S&P 500

While the group remains below long-term relative resistance at the highlighted zone, the series of higher relative lows continues to be an encouragement for the bulls. However, they will want to see a breakout above relative resistance to have confidence that the relative trend can be sustainable.

Growth vs Value (Large Cap) chart for March 25th research.

Energy

Energy faces a key test as it broke below the rising 200-day moving average over the past week of trading. While this has been a bearish development, the bulls will look for the 525-support zone to hold to the upside to have confidence that the uptrend is intact. Below this level, the bear’s case gains strength.

Relative to the S&P 500

The group is testing the ratio’s rising 50-day moving average from above and remains above long-term relative support at the highlighted zone. Above this level, and the relative bias remains with the bulls.  

Growth vs Value (Large Cap) chart for March 25th research.

Consumer Staples

Consumer Staples are one of the few sectors above its June low, but the declining 50-day moving average lends evidence for a test of that zone. Even the defensives have not been spared from recent selling pressure.

Relative to the S&P 500

The group has strengthened on a relative basis over the past week of trading, as the group recaptured the ratio’s rising 50-day moving average to the upside.

Growth vs Value (Large Cap) chart for March 25th research.

Utilities

Utilities have undercut the rising 200-day moving average to the downside over the past week of trading. Note that similar price action has played out over the past year. In this case, the time spent below the 200-day moving average should carry more weight than price distance.

Relative to the S&P 500

Performance continues to struggle at relative resistance at the highlighted zone—not breaking out and not breaking down. Continued outperformance in this space can be indicative of a lack of equity risk appetite, and a reversal at this zone could be an indication of an increase in equity risk appetite.

Growth vs Value (Large Cap) chart for March 25th research.

Health Care

The Health Care sector continues trading below declining 50 and 200-day moving average, although it remains one of the few above its June lows.

Relative to the S&P 500

While the absolute chart leaves much to be desired, relative performance presents an accurate example of what “less bad” looks like in this environment as the group continues trading above the ratio’s rising 50-day moving average. 

Growth vs Value (Large Cap) chart for March 25th research.

Real Estate

Real Estate has broken below long-term support at the 230 zone in the September 26th trading session as the group continues its decline below the 50 and 200-day moving averages.

Relative to the S&P 500

Relative performance has broken long-term relative support at the highlighted zone below the ratio’s declining 50-day moving average in a neutral to bearish reversal. It’s worth noting that this is an early development, and an upside relative reversal could still be in the cards at these levels.

Growth vs Value (Large Cap) chart for March 25th research.

*Today, we will only publish the Daily Note as the team is attending the Potomac Conference. There will not be a note on Wednesday. We will return to the normal schedule on Thursday.

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