Take-Aways:
The short-term rally we have been calling for has been playing out, and most sectors have bounced on an absolute basis. Despite that, leadership has remained the same under the surface of the market. We continue to believe that investors who must have an equity allocation should be focused on the sectors that are performing well (Energy) or are “less bad” (Health Care, Industrials, Financials).
Visiting the Sector Relatives
Information Technology
The Technology sector has regained broken support at the June lows but remains below the declining 50 and 200-day moving averages. Until the moving averages are overcome, it is hard to make a compelling bullish case for the group.
Relative to the S&P 500
The relative trend remains below the 50-day moving average after breaking down from the consolidation zone to new cycle lows last week.
Consumer Discretionary
The Consumer Discretionary sector trades below the 50 and 200-day moving averages but has established a support level near the pre-COVID highs. A countertrend rally has an upside to the 1,200 mark.
Relative to the S&P 500
On a relative basis, Discretionary remains in a consolidation. However, the ratio has recently moved below the 50-day moving average and is below price-based resistance. More time is needed.
Communication Services
The Communication Services sector remains below price-based resistance and the 50-day moving average as it trades well below the declining 200-day moving average. The door remains open to a test of the COVID lows.
Relative to the S&P 500
The relative trend is below the 50-day moving average, trading near all-time lows.
Materials
The Materials sector remains below the 50 and 200-day moving averages as it continues to hold price-based support near the June lows. The sector has staged a short-term rally, which we called for last week, but must clear the moving averages to make a stronger case from here.
Relative to the S&P 500
On a relative basis, the group is fighting to regain the 50-day moving average above price-based support to keep the trend neutral for now.
Financials
Financials are testing the 50-day moving average below the 200-day moving average after holding support at the pre-COVID highs. Bulls need to recapture the 200-day moving average to make a stronger case.
Relative to the S&P 500
On a relative basis, the ratio is trading above support and the 50-day moving average. For investors who must be invested, this a sector should be on the radar.
Industrials
Industrials remain below the 50 and 200-day moving averages but are holding support near the 720 level that we have been highlighting. Bulls need to retake the 200-day moving average to make a more compelling case.
Relative to the S&P 500
The relative trend has rallied from the 50-day moving average as it trades in a consolidation. The series of higher lows is an encouraging development, but resistance must be broken for the group to take a leadership position.
Energy
The Energy sector is trading above support and the 50 and 200-day moving averages. The near-term trend continues to have an upside bias that could take the group to new highs. A move below 470 negates the bull case.
Relative to the S&P 500
The group remains a leader, with the ratio making new highs above the 50-day moving average.
Consumer Staples
Consumer Staples is holding support near the 690 level as they trade below the declining 50 and 200-day moving averages. The bulls must reclaim the moving averages to make a more compelling case on an absolute basis.
Relative to the S&P 500
The relative trend remains in a near-term consolidation but is holding above support and the rising 50-day moving average.
Utilities
Utilities remain below the now declining 50 and 200-day moving averages, and the group battles to hold price-based support near the 325 level. The current move to the downside breaks the bullish trend that has been in place since the COVID lows.
Relative to the S&P 500
The relative trend has broken below the rising 50-day moving average. It hard to make the case that the group is still a leader.
Health Care
Health Care is holding price-based support and has regained the 50-day moving average. Clearing the 200-day moving average would be the next bullish development. Above 1,510, there is room to the April highs.
Relative to the S&P 500
The relative trend remains strong as Health Care has been a less bad sector of the market. The ratio is above the 50-day moving average after holding support and trades near the 2020 highs.
Real Estate
Real Estate remains below the declining 50 and 200-day moving averages but is holding support at the 210 level. This is a logical spot for a countertrend rally to begin.
Relative to the S&P 500
On a relative basis, the group has broken down, trading below the resistance and the 50-day moving averages. The early 2021 lows have been lost.
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