fbpx

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).

This daily note IS brought to you by Research by Potomac. Access the full Advisor toolkit and get a deeper look at the markets.

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.

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

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.

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

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.

Lumber / Gold chart for March 25th research.

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.

Copper / Gold chart for March 25th research.

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.

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

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.

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

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.

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

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.

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

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.

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

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.

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

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.

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

If you enjoy reading this Daily Note and would like to go deeper, Research by Potomac features a monthly chart book, sector deep dives, intermarket analysis, and more. 

Potomac Fund Management (“Company”) is an SEC-registered investment adviser. 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. The company does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to the Company website or incorporated herein, and takes no responsibility for any of this information. The views of the Company are subject to change and the Company is under no obligation to notify you of any changes. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy will be profitable or equal to any historical performance level.