Key Points
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- Software Holds Relative Support
- Technology Closes at a One-Month Relative High
- Communication Services Nearing a Breakout
- REITs Complete the Bearish to Bullish Trend Reversal
- Early Pressure on Materials and Industrials
Chart in Focus
The Technology sector made a 21-day relative high, at yesterday’s close, and one group within the Technology sector that we would expect to take a leadership role (if relative trends are changing) is Software. The S&P 500 Software Index is in an uptrend on an absolute basis, following the 50-day moving average up and to the right. However, as always, it is the relative trend that contains compelling information. The group has been lagging for nearly a year, but the pace of underperformance appears to be diminishing. A move above the 50-day moving average and the April highs would serve to change the relative trend.
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 remains above the rising 50-day moving average, keeping the price trend to the upside. Support is in the 2,200 – 2,250 zone on the downside and 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. We do note that the sector made a 21-day relative high yesterday.
Consumer Discretionary
The Consumer Discretionary sector has been unable 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. Now, the key support level has been broken as well. Time is needed for a base to build before a reversal can decisively take hold.
Communication Services
The Communication Services sector is knocking on the door of 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 above the rising 50-day moving average and has near-term support at the breakout level. Odds favor a continuation of outperformance, but a break of the moving average would be a sign that the trend is changing.
Financials
Financials remain in an uptrend, trading just below record highs. 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 continue to trade above near-term support. 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 remains in an uptrend, above the rising 50-day moving average. In the near-term, the group is consolidating gains. Support near 830 is the level that the bulls must defend, to keep this cyclical group in a bullish trend.
Relative to the S&P 500:
On a relative basis, price-based and moving average support continue to be tested and are holding thus far. The next key test will be around the 2019 highs.
Energy
The Energy sector has broken above the resistance zone that we have been highlighting. At the same time, the 50-day moving average is beginning to move higher, keeping the bullish trend from November in place.
Relative to the S&P 500:
Consumer Staples
The absolute trend for Staples is bullish, as the group trades above the 50-day moving average and is 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. The biggest question is if this consolidation is simply a pause in a downtrend or the early stages of a reversal. So far, there is not a clear answer.
Real Estate
Real Estate is holding above the breakout level and trading at 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 has completed the bearish to bullish reversal that we highlighted last week. Former resistance should now be support to pullbacks, and we look for the rising 50-day moving average to define the trend.
Utilities
The Utilities sector is trading 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 be bearish, with the ratio below the declining 50-day moving average.
Health Care
The Health Care sector remains in an absolute uptrend, testing near-term support at the rising 50-day moving average, and above 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 below 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.
