Key Points
- Chemicals Have a Positive Reaction
- Technology Powers to New Relative Highs
- Discretionary Needs a Break after the TSLA-Led Run
- Materials and Industrials Gap to Records, Relative Turns to Follow?
- Defensive Sectors Continue to Lag
Chart in Focus
In the Note below, we highlight the strength in the Materials sector. One of the industry groups driving that strength is Chemicals. The S&P 500 Chemicals Index has broken to new highs after trading in a consolidation since May. Price-based support is in the 870 – 890 zone. Above this level and the 50-day moving average, the bulls are in control as the uptrend trend from the March 2020 lows resumes.
The relative trend is in the process of a bearish-to-bullish reversal, with the ratio taking out the 50-day moving average and setting its sights on the August peak. Above that level, a new trend of outperformance has taken hold.
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
For the Technology sector, last week, we wrote, “the bulls are in control, and the uptrend is likely to persist.” That has largely been the case, with the group closing higher for the past five trading days and now extended above the rising 50-day moving average. While it would not be surprising to see the rate of appreciation begin to slow, the bullish trend remains in place until 2,810 is broken.
Relative to the S&P 500
Consumer Discretionary
The Consumer Discretionary sector is taking a breather after a powerful sprint to the upside led by TSLA. The group is well above the 50-day moving average, and we would not be shocked to see a pause or even a round of profit-taking after such a swift advance.
Relative to the S&P 500
On a relative basis, Discretionary is checking back after a break of near-term resistance. The ratio is above the rising 50-day moving average, which will need some time to catch up to the price.
Communication Services
The Communication Services sector continues to wrestle with the declining 50-day moving average above support at the 265 level. For now, the trend is a consolidation after a strong advance. We want to see a break to a new high before we can make the case that the bulls are in control.
Relative to the S&P 500
The relative ratio remains below the declining 50-day moving average as it tests support. This is a level that must hold, or the January lows are likely to be tested. For now, the odds of a hold appear suspect.
Materials
Like a hurdler, the Materials sector has jumped to a new closing high after trading in a consolidation since April. The group is above the 50-day moving average, and we now want to see the break to new highs hold to have confidence that the larger uptrend is resuming. Above 540, the benefit of the doubt is with the bulls.
Relative to the S&P 500
Financials
The Financials have continued to stall after a strong move to the upside that led to a breakout in October. Price and moving average support are in the 640 – 650 range, and above these levels, the bulls are in control.
Relative to the S&P 500
Industrials
The Industrial sector, like the Materials, have gapped to new closing highs after trading in a consolidation since May. Above the 50-day moving average, the bulls keep the ball, and the path of least resistance is to the upside.
Relative to the S&P 500
Energy
The Energy sector continues to rest, giving the 50-day moving average time to catch up after a powerful move from the August/September lows. For now, the benefit of the doubt is with the bulls, and the uptrend is likely to resume if price is above support at the 420 level.
Relative to the S&P 500
The relative trend continues to pause below resistance while remaining above the rising 50-day moving average. Energy bulls want the resistance zone to be overcome quickly to have confidence that leadership will continue. This view is unchanged on the week.
Consumer Staples
The Consumer Staples have been rejected in their quest to break to new highs. The benefit of the doubt remains with the bulls if price is above the 50-day moving average and support at the 735 level. But we must ask, is this a group that deserves an allocation?
Relative to the S&P 500
Real Estate
After a strong rebound, the Real Estate sector continues to hit the wall at prior highs. We continue to give the benefit of the doubt to the bulls if the price is above support and the 50-day moving average, but we want to see a break to new highs soon.
Relative to the S&P 500
On a relative basis, the group continues to dance with the 50-day moving average while holding important price-based support. This level should be watched closely. Until there is a break in either direction, we would expect the group to be an in-line performer. This view is unchanged on the week.
Utilities
Utilities remain in a broad, sloppy consolidation, keeping us completely uninterested for the time being.
Relative to the S&P 500
Health Care
Health Care’s rehab process is taking longer than we would like. After a strong rebound from 1,460 support and a retake of the 50-day moving average, price has stalled below the prior highs. We want to see these highs breached before we can become more excited about a full recovery.
Relative to the S&P 500
On a relative basis, Health Care remains weak, below the declining 50-day moving average.
Take-Aways:
Eight of eleven sectors are trading at/near record highs. This lends a bullish confirmation to the uptrends that we highlighted in yesterday’s Note, supporting our view of a melt-up into the end of the year. The message from the relative trends is also bullish as the “defensive” sectors continue to lag.
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