Key Points
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- Semiconductors Breakout on an Absolute Basis
- Technology Continues to Improve
- Communication Services Score a Relative Breakout
- Cyclical Sectors Weaken Further
- Staples and Utilities Trade Near Relative Lows
Chart in Focus
The S&P 500 Semiconductors and Semiconductor Equipment Index has broken out of the consolidation that has been in place since February. The index is trading above the 50-day moving average which is beginning to turn higher. The breakout level, near 2,050, now becomes near-term support. Holding above this level sets the stage for further upside.
Relative to the S&P 500, the Semis are moving further beyond the 50-day moving average and are on the verge of breaking a series of lower highs and lower lows. Taking out near-term resistance puts the February highs in play.
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
On an absolute basis, the Technology sector has traded to a new high, above the rising 50-day moving average. Near-term support moves up to the breakout level near 2,550. Should that fail to hold, the rising moving average would be a key level for the bulls to defend.
Relative to the S&P 500:
On a relative basis, the ratio is above the 50-day moving average and is testing resistance at the April high. A break of resistance would be a sign that Technology is moving back into a leadership position after lagging since last September.
Consumer Discretionary
The Consumer Discretionary sector has rebounded from the 50-day moving average, now an important support level, and is on the verge of trading to a new high on an absolute basis.
Relative to the S&P 500:
On a relative basis, the group remains in a downtrend, yet to break the series of lower highs and lower lows that has been in place since last October. The ratio is fighting to hold above the declining 50-day moving average.
Communication Services
The Communication Services sector has traded to a new high, remaining above the rising 50-day moving average. Price-based support moves up to the breakout level in the 255 – 260 range.
Relative to the S&P 500:
On a relative basis, the ratio has finally broken to a new high after numerous failed attempts. The group is above the rising 50-day moving average, which is also moving higher.
Materials
Materials remain below the 50-day moving average, after undercutting it last week. This brings price-based support, near the 500 level, into play. Holding this mark will keep the uptrend intact on an absolute basis.
Relative to the S&P 500:
On a relative basis, the group has weakened further over the past week, remaining below the 50-day moving average which is now flat. The relative support level is now key. A break below would signal that this “reflation” winner has shifted to a relative downtrend.
Financials
Financials have held the support level that we have been highlighting and are now in the process of testing resistance at the 50-day moving average. Holding support keeps the uptrend from the March 2020 lows in place. A break would signal that this trend is in question.
Relative to the S&P 500:
On a relative basis, the group remains below the 50-day moving average, which is shifting from rising to flat. Thus far, relative support is holding. A break of support would move the group into a lagging position.
Industrials
The Industrials sector has also held price-based support in the near-term and is now testing the 50-day moving average from below. A break of support would confirm the topping process that has been playing out since early May.
Relative to the S&P 500:
On a relative basis, the group continues to lag this week, trading below the declining 50-day moving average and resistance.
Energy
The Energy sector remains above the rising 50-day moving average on an absolute basis but continues to have a hard time holding above price-based resistance. While the trend remains to the upside, the inability to breakout is a red flag that we are watching closely.
Relative to the S&P 500:
On a relative basis, the ratio is testing the rising 50-day moving average while holding below resistance.
Consumer Staples
The Consumer Staples sector is above price-based support but remains below the 50-day moving average. Remaining above support keeps the odds in favor of the highs being tested in the near-term.
Relative to the S&P 500:
While the absolute trend is bullish, Staples have a bearish relative trend. The group is trading near the lows relative to the S&P 500, below the declining 50-day moving average.
Real Estate
Real Estate is consolidating after trading at record levels recently. The group is above the rising 50-day moving average which is likely to continue to define the trend in the near-term. Price-based support moves is in the 265 – 270 range.
Relative to the S&P 500:
On a relative basis, Real Estate is also pulling back in the short-term but remains above the rising 50-day moving average and price-based support.
Utilities
The Utilities sector continues to trade below the, now declining, 50-day moving average and in the consolidation that has been in place since November. Further resistance is near the pre-pandemic highs at 360. On the downside, support is near the 300 level.
Relative to the S&P 500:
The relative trend remains bearish, with the ratio below the declining 50-day moving average and price-based resistance as the group trades near the lows of the past two years.
Health Care
The Health Care sector remains in an uptrend on an absolute basis, above the rising 50-day moving average and on the verge of trading at a new high. The key price level for the bullish trend is in the 1,370 – 1,390 zone.
Relative to the S&P 500:
On a relative basis, the group continues to build a base. The ratio is trading on the 50-day moving average, which is beginning to move higher but remains below an important near-term resistance level.
Take-Aways
Rotation is the near-term focus for investors as groups such as Technology and Communication Services have exhibited relative strength of late. At the same time, the cyclical groups, which have been leading since November are showing signs of near-term pressure. Except for Real Estate, we are not seeing any signs of leadership on the part of defensive groups, as Utilities and Staples trade near relative lows.