Key Points
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- Semis Close at a One-Month, Relative High
- Cyclicals Remain in the Driver’s Seat as Market Leadership
- Technology and Discretionary Continue to Underperform
- Too Soon to Call a Turn in the Defensive Sectors
- REITS Buck the Trend, Continue to Move Higher
Chart in Focus
While the Technology sector continues to languish relative to the S&P 500, one of its key industry groups is beginning to show signs of life. The S&P 500 Semiconductor and Semiconductor Equipment Index has retaken the 50-day moving average, on an absolute basis, but remains in a well-defined consolidation. However, what has caught our attention, is the fact that the group traded to a 21-day high on a relative basis. At the same time, the ratio closed above the 50-day moving average. While the moving average is still declining, the close above it is an early and encouraging signal that the trend may be turning.
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 is holding above the rising 50-day moving average, keeping the price trend to the upside. Support remains in the 2,200 – 2,250 zone on the downside. On the upside, resistance is near the all-time high, at the 2,525 level.
Relative to the S&P 500:
On a relative basis, Technology continues to test resistance as the group trades below the declining 50-day moving average. We are still waiting for a break above the moving average to signal that the trend of underperformance is changing.
Consumer Discretionary
The Consumer Discretionary sector is fighting hard to regain the 50-day moving average, and break above resistance, as the consolidation remains in place.
Relative to the S&P 500:
The relative trend remains to the downside, as the ratio trades below the declining 50-day moving average. In the near-term, the key support level that we have been highlighting is holding. Time is needed for a base to build before a reversal can decisively take hold.
Communication Services
The Communication Services sector is on the verge of trading to an all-time high, on an absolute basis, after holding price-based support. The group is above the rising the 50-day moving average, which has defined the trend since it was broken in April 2020.
Relative to the S&P 500:
Materials
Materials continue to trade above the rising 50-day moving average, which has been support for the current uptrend. The group remains in a consolidation but has not reversed in a way that calls the bullish trend into question.
Relative to the S&P 500:
On a relative basis, Materials are pulling back after trading to new highs on May 17th. The ratio is firmly above the rising 50-day moving average and has near-term support at the breakout level. Odds favor a continuation of outperformance.
Financials
Financials are consolidating recent gains, just below record highs, within the context of a bullish trend. The group is trading above the rising 50-day moving average and price-based support near the 580 level.
Relative to the S&P 500:
Financials have, thus far, held support on a relative basis. The ratio is above the rising 50-day moving average and the odds favor that the pre-pandemic highs will be tested.
Industrials
The Industrials sector continues to move higher after finding support at the rising 50-day moving average, to keep the uptrend in place on an absolute basis. Above support, in the 830 – 840 range, the odds favor a test of the all-time highs.
Relative to the S&P 500:
On a relative basis, price-based and moving average support have been tested and are holding. The next key test will be around the 2019 highs.
Energy
The Energy sector remains stuck between support and resistance on an absolute basis. The neutral trend can be seen in the fact that the 50-day moving average has shifted from rising to flat. For now, this can be described as a consolidation within the uptrend that has been in place since November. A break of the 415 level would likely target 470. On the downside, a close below 340 would be a sign that the uptrend has run its course.
Relative to the S&P 500:
On a relative basis, resistance continues to hold. The ratio is testing the 50-day moving average as the slow reversal of the downtrend continues to play out.
Consumer Staples
The absolute trend for Staples is bullish, as the group trades above the 50-day moving average and near record highs. Support is near the breakout level in the 690 – 700 range.
Relative to the S&P 500:
The group continues to consolidate on a relative basis and has moved below the 50-day moving average. The biggest question is if this consolidation is simply a pause in a downtrend or the early stages of a reversal.
Real Estate
Real Estate is holding above the breakout level and trading near record highs. Price-based support is near 260, a level that now lines up with the rising 50-day moving average.
Relative to the S&P 500:
The relative trend in Real Estate continues to slowly shift to the upside. The ratio is above the rising 50-day moving average, and a move through resistance would complete the trend change.
Utilities
The Utilities sector is moving below the 50-day moving average and remains below near-term resistance at the 345 level. Above that, the next test would be around the pre-pandemic highs near 360. On the downside, support is near the 300 level.
Relative to the S&P 500:
The relative trend continues to breakdown, with the ratio below the declining 50-day moving average.
Health Care
The Health Care sector remains in an absolute uptrend with near-term support at the rising 50-day moving average, and price-based support in the 1,370 – 1,390 zone.
Relative to the S&P 500:
The relative trend is flat as the base-building process continues. The ratio is above the 50-day moving average, which is beginning to turn to the upside. A break of resistance would increase conviction that a relative turn is underway.
Take-Aways
The reflation/cyclical sectors of the market continue to receive the benefit of the doubt, as relative trends remain to the upside. For the former leaders, the burden of proof is on the bulls in the Technology and Discretionary sectors, as relative trends are to the downside. Defensive groups have a lot of work to do and, aside from Real Estate, it remains too early to call a turn in their favor.