Key Points

  • Broad Participation as Financials Attack their Highs
  • Technology’s Relative Uptrend Stalls
  • Bullish Relative Trend Change for the Energy Sector
  • Materials and Industrials Rebound from Support; Will it Continue?
  • REITs and Utilities Fade as Rates Rise

Chart in Focus

With interest rates moving higher, the Financials will remain in focus in the near-term. The group tends to benefit from higher rates, and, thus far, that has been playing out. Looking at the group from the perspective of longer-term breadth trends, we can see that over 93% of the stocks in the S&P 500 Financials sector are above their respective 200-day moving average. The index itself is pushing to the top of the recent consolidation range as it trades above its own rising 200-day moving average. Odds favor new highs.

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

After a brief undercut last week, the Technology sector has rallied to reclaim broken support and the 50-day moving average. The 2,700 level remains important and, should that give way, support at 2,600 will likely be tested.

Relative to the S&P 500

The relative trend remains in a stalling pattern between support at the 50-day moving average and price-based resistance. Rising interest rates are likely a headwind for the group in the near-term. A break of the moving average will open the door to a test of support at the April highs once again.

Consumer Discretionary

The Consumer Discretionary sector has regained its 50-day moving average and pushed to the top of the range that has been in place since July. Price-based support near 1,400 continues to be the key level for the consolidation. Resistance is near 1,490.

Relative to the S&P 500

On a relative basis, Discretionary is moving above the downtrend line after breaking above the declining 50-day moving average. This improvement in relative strength has caught our attention, and we are now on watch for a confirmed trend change.

Communication Services

The Communication Services sector remains below the 50-day moving average after breaking below near-term support last week. Below these two key levels, the odds favor a move to the next support level near 260.

Relative to the S&P 500

The relative ratio is also under pressure, below the 50-day moving average and the rising trend line from the early 2021 lows. The onus is now on the bulls to quickly reverse near-term weakness.

Materials

The Materials sector has tested and held price-based support but remains below the 50-day moving average as the consolidation continues. Until there is a decisive break one way or the other, we are content to watch the battle raging within the consolidation zone.

Relative to the S&P 500

On a relative basis, the trend remains bearish as it trades below resistance and the 50-day moving average.

Financials

The Financials have pushed to the top of the consolidation zone, putting resistance at the 650 level in play. The group is above the rising 50-day moving average as the recent backup in interest rates has acted as a tailwind for the group.

Relative to the S&P 500

The relative trend is in the process of reestablishing a leadership position after retaking the 50-day moving average. A break of near-term resistance will open the door to an attack on the 2021 highs.

Industrials

The Industrials have tested and held support but remain below the 50-day moving average. The group continues to trade in the consolidation that has been in place since May.

Relative to the S&P 500

While the absolute trend remains neutral, the relative trend is finding support at the early-2021 lows. Should a rebound take hold, this would be a logical place for it to begin. The next test will be the declining 50-day moving average, a break of which would set the stage for further outperformance.

Energy

After holding price-based support, the Energy sector has reversed higher to break above the 50-day moving average and the short-term consolidation zone. The door is now open to an attack on the highs near 420.

Relative to the S&P 500

At the same time, the relative trend has reversed higher and is in the process of breaking resistance. The ratio is above the 50-day moving average, increasing the odds that Energy is regaining the leadership position that it lost in March.

Consumer Staples

The Consumer Staples sector remains below the 50-day moving average and is having a hard time regaining broken support (now resistance?). Odds now favor a move down to the next support level near 710.

Relative to the S&P 500

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

Real Estate

Real Estate has broken price-based support after losing the 50-day moving average last week. The group has now made a lower high, and a lower low as the early stages of a trend reversal appear to be at hand.

Relative to the S&P 500

On a relative basis, the group has failed at resistance and broken below the 50-day moving average. While the Real Estate had been a beneficiary of an “economic reopening,” higher rates are now likely a negative for the relative trend.

Utilities

The Utilities Sector has traded lower for 13 consecutive days. The late August strength was a false breakout, and the group is now well below the 50-day moving average, which is beginning to turn lower. This is a group that is sensitive to interest rates and is now feeling the pressure.

Relative to the S&P 500

The relative trend is bearish once again, below the 50-day moving average and trading near multi-decade lows.

Health Care

The Health Care sector remains below the 50-day moving average, opening the door to a move down to price-based support near 1,470. 

Relative to the S&P 500

On a relative basis, Health Care continues to oscillate around the 50-day moving average. The ratio has not been able to sustain upside momentum on rallies, indicating that the basing process needs more time to play out.

Take-Aways:

Rising rates are beginning to impact the equity market, with strength surfacing in the Financial sector, while groups such as Real Estate and Utilities come under pressure. At the same time, sectors that are leveraged to “growth” stocks are starting to stall. We are closely watching for potential breakdowns in Technology and Communication Services.
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.