Key Points

    • Airlines Begin to Lose Altitude Just as Travel Returns
    • “Reflation” Sectors Test Their 50-Day Moving Averages, Relative Pressure Builds
    • Technology Continues to Improve
    • Communication Services is on the Verge of a Relative Breakout
    • Real Estate’s Trends are Strong

Chart in Focus

The equity market has an uncanny ability to consistently prove that it is a discounting mechanism. Just as summer travel is beginning to return, the S&P 500 Airline Index has stalled in its strong rally from the pandemic lows. The index has undercut the 50-day moving average, which is shifting from rising to flat. Should weakness persist, support is near 270.

On a relative basis, the group is below the declining 50-day moving average as well.

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 Technology sector remains above the rising 50-day moving average, as the group has been strong as of late. Price is on the verge of trading to a new all-time high, which would put it back in gear with the broader equity market. Near-term support moves up to the 2,300 level, while resistance remains in the vicinity of the prior highs.

Relative to the S&P 500:

On a relative basis, the ratio has regained the 50-day moving average, which is shifting from declining to flat. Breaking the string of lower lows and lower highs would be the next step in reversing the relative downtrend.

Consumer Discretionary

The Consumer Discretionary sector remains below the 50-day moving average and price-based resistance, in the consolidation that has been playing out since the start of the year.

Relative to the S&P 500:

The relative trend remains to the downside, as the ratio trades below the declining 50-day moving average and the key support level that we have been highlighting. Time is needed for a base to build before a reversal can decisively take hold.

Communication Services

The Communication Services sector traded to a new all-time high yesterday on an absolute basis. The group is above the rising the 50-day moving average, and price-based support is in the 240 – 245 zone.

Relative to the S&P 500:

On a relative basis, the ratio remains in a consolidation, but is knocking on the door of a breakout. The 50-day moving average is turning higher as well. We are watching closely for a relative breakout.

Materials

Materials are testing the rising 50-day moving average on an absolute basis. Thus far, this appears to be an orderly pullback within the context of an ongoing uptrend. Price-based support comes into play near the 500 level.

Relative to the S&P 500:

On a relative basis, Materials continue to pullback from the high that was reached on May 17th. The ratio is below the rising 50-day moving average and is now testing support.

Financials

Financials remain in an uptrend but are also testing their rising 50-day moving average. A deeper pullback has support near the 580 level. Below that would signal that price is in the process of reversing lower.

Relative to the S&P 500:

Financials have broken below first support and the rising 50-day moving average on a relative basis. For now, the rising relative trend remains in place, but we must wonder if the breakdown in rates which we highlighted in yesterday’s note will begin to present a headwind for the group.

Industrials

The Industrials sector remains in an uptrend, testing the rising 50-day moving average. In the near-term, the group is consolidating gains. Support near 830 is the level that keeps the trend in place, a break below would signal that a new downtrend is underway.

 

Relative to the S&P 500:

On a relative basis, the group has broken below price-based and moving average support (now resistance). At the same time, the 50-day moving average is beginning to turn lower.

Energy

The Energy sector remains above the resistance zone that we have been highlighting (now support). The 50-day moving average continues to move higher as well, setting the stage for a test of the pre-pandemic highs. 

Relative to the S&P 500:

On a relative basis, resistance continues to hold. The ratio remains between the flat 50-day moving average and price-based resistance.

Consumer Staples

The absolute trend for Staples has moved into a consolidation, 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, trading around the 50-day moving average. It appears that more time is needed for a base to build.

Real Estate

Real Estate remains in a strong uptrend, trading to record levels last week, above the steadily rising 50-day moving average. Price-based support moves up to the 265 – 270 range.

 

Relative to the S&P 500:

The relative trend in Real Estate is bullish, with the group trading above the rising 50-day moving average and price-based support.

Utilities

The Utilities sector is testing the 50-day moving average from below 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 remains bearish, with the ratio below the declining 50-day moving average and price-based resistance.

Health Care

The Health Care sector remains in an absolute uptrend after holding support at the rising 50-day moving average. The group is above the key price level 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 flat. A break of resistance would increase conviction that a relative turn is underway.

Take-Aways

Last week we highlighted early signs of pressure in the “reflation” sectors of the market. This week, we note that Materials, Financials, and Industrials are all testing their 50-day moving averages from above. The relative trends in these groups are also under near-term pressure. At the same time, there are signs of a shift into former leaders such as Communication Services and Technology. We remain bullish on the trend in Real Estate but note that the other “defensive” groups, Staples, and Utilities, are uninspiring.

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.