Most Sectors are Near Record Highs,
That’s Not Bearish

by | Nov 16, 2021

Key Points

  • Retail Index Gets an Early Start on Holiday Shopping Season
  • Discretionary Continues to Track TSLA
  • Materials and Industrials Hold Their Breakouts
  • Will a Flattening Curve Hurt the Financials?
  • Staples at New Highs but Lagging, That’s Bullish for Equities

Chart in Focus

Right in time for the start of the holiday shopping season, the S&P 500 Retailing Index has broken to a new high on an absolute basis after consolidating since the middle of the summer. The index has price-based support at the breakout level (4,230) and then at the rising 50-day moving average.

The relative trend is in the process of bottoming. The ratio has held support and is now above the rising 50-day moving average. A move above the September highs sets the stage for leadership into the end of the year.

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 bulls remain in control of the Technology sector, with the price hovering near record highs, in a consolidation, after a strong run from the September lows. Support is at the 2,810 level and then at the rising 50-day moving average below that.

Relative to the S&P 500

The relative trend is knocking on the door of new highs at the levels seen in September 2020, above the 50-day moving average. A breakout would solidify leadership for the group.

Consumer Discretionary

For the time being, the Consumer Discretionary sector’s ebb and flow are being dictated by TSLA. The group became extended above the 50-day moving average earlier this month and has since moderated. For now, this appears to be a pause/consolidation after a strong move. However, it is important to remember that AMZN and TSLA make up nearly 40% of the sector, and their performance will continue to have an outsized impact. 

Relative to the S&P 500

On a relative basis, Discretionary has broken below near-term support but remains above the rising 50-day moving average. Further weakness is likely to find support at the moving average.

Communication Services

The Communication Services sector remains in a wrestling match with the declining 50-day moving average, stuck in a consolidation that began in July. The group is above price-based support near 265, but more work is needed before we can declare that the uptrend is resuming.

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.

Materials

After leaping to new highs last week, the Materials sector is holding above the breakout level. The 50-day moving average is beginning to move higher, signaling that the group is resuming its uptrend after consolidating since May.

Relative to the S&P 500

On a relative basis, Materials remain neutral with an upside bias. A break of resistance at the August highs would be a signal that the group is taking a leadership position.

Financials

The Financials continue to be in a holding pattern above the rising 50-day moving average and price-based support. For now, this appears to be a pause within a larger uptrend, but we must wonder if the flattening yield curve that we have mentioned in our past two Monday Notes is beginning to have an impact on the group.

Relative to the S&P 500

The relative trend is holding below the 50-day moving average as it trades in a consolidation.

Industrials

The Industrial sector is also holding above last week’s breakout level, keeping the bulls in control of the ball. Here too, the 50-day moving average is curling higher to signal that the uptrend is resuming.

Relative to the S&P 500

The relative trend is also improving, holding above support and the 50-day moving average. We now want to see a higher high to signal that a new trend of outperformance is beginning.

Energy

After sprinting ahead, the Energy sector is holding in a consolidation, giving the rising 50-day moving average time to catch up. Support remains above the 420 level, above which the bulls remain in control.

Relative to the S&P 500

The relative trend remains below resistance and is now testing the rising 50-day moving average. If Energy is going to reassert a leadership position, this would be a logical spot for a move to the upside to begin.

Consumer Staples

We can add the Consumer Staples sector to the list of sectors that have traded to new highs during the year-end melt-up. First support is now at the breakout level near 755. Stronger support is near 735, in line with the 50-day moving average.

Relative to the S&P 500

The relative trend remains bearish, below the 50-day moving average, near 20-year lows.

Real Estate

The Real Estate sector is holding just below record levels but above price and moving average support. If the group is above 295, odds favor a break to new highs.

Relative to the S&P 500

On a relative basis, the group is below the 50-day moving average, which is converging on price-based support. Until there is a break, Real Estate is an inline performer.

Utilities

Utilities remain in the consolidation that has been in place for more than a year and a half. During this time, the price has swung above and below a choppy 50-day moving average. It’s hard to have a strong view in either direction.

Relative to the S&P 500

The relative trend remains bearish, below the declining 50-day moving average and near all-time lows. The trend here is quite clear.

Health Care

Health Care is testing short-term support at the 1,550 level and is holding above the 50-day moving average. We want to see a break to new highs to signal that the patient has made a full recovery.

Relative to the S&P 500

On a relative basis, Health Care remains weak, below the declining 50-day moving average and trading near recent lows.

Take-Aways:

Most sectors continue to trade at/near record highs. That is the sign of a fairly healthy market. We are encouraged by the fact that the defensive Staples are trading at record levels but continue to lag. Industrials and Materials are holding their breakouts, a sign that their uptrends are resuming. We must wonder if the Financials can hold near recent highs in the face of a flattening yield curve. For now, they appear to be consolidating, but we are tracking this group closely.

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.