Still Playing the Relative Game,
Seeking “Less Bad”

by | Jun 7, 2022

Key Points

  • Growth Sectors Are Still Lagging
  • Technology Meets Strong Resistance
  • Being Selective in the Cyclicals
  • Energy and Materials Over Financials and Industrials
  • Defensive Groups Are Mixed

Visiting the Sector Relatives

Information Technology

The rebound for the Technology sector has stalled at price-based resistance, near the declining 50-day moving average. The 200-day moving average is higher and not a factor currently. Below 2,500, the bears are in control.

Relative to the S&P 500

The relative trend is still bearish below resistance and the declining 50-day moving average.
High Beta / Low Volatility chart for March 25th research.

Consumer Discretionary

After rebounding from support at the pre-COVID highs, the Discretionary sector will now have to fight its way through resistance and the declining 50-day moving average. Both of these hurdles are below the declining 50-day moving average.

Relative to the S&P 500

On a relative basis, Discretionary remains in a downtrend despite a near-term rally.
Discretionary / Staples (EW) chart for March 25th research.

Communication Services

Communication Services stocks continue to hold support at the pre-COVID highs for now. However, the index remains below the declining 50 and 200-day moving averages, keeping the bears in control of the trend.

Relative to the S&P 500

Relative to the S&P 500, the group remains in a downtrend, below the declining 50-day moving average.
Lumber / Gold chart for March 25th research.

Materials

The Materials sector continues to trade in a range but is holding above the moving averages, giving a slight edge to the bulls. A break of 560 could set the stage for the bulls to gain control.

Relative to the S&P 500

On a relative basis, Materials are an outperformer, trading above the rising 50-day moving average. The ratio will now look to break through the May 2021 peak to solidify its leadership position.
Copper / Gold chart for March 25th research.

Financials

Financials are trading in a consolidation zone, with support at the pre-COVID highs. The group is below the declining 50 and 200-day moving averages, keeping the bias to the downside for now. 

Relative to the S&P 500

On a relative basis, the group is also in a consolidation. The ratio has held support and is above the 50-day moving average. A move above resistance would set the stage for further leadership.
Small Caps / Large Caps chart for March 25th research.

Industrials

Industrials are stuck in a consolidation zone below the 50 and 200-day moving averages. Resistance is near 830 (lines up with the 50-day moving average), and support comes into play near the pre-COVID highs.

Relative to the S&P 500

The relative trend is holding the 50-day moving average. Clearing the March peak would complete the bearish to bullish reversal.
Growth vs Value (Large Cap) chart for March 25th research.

Energy

The Energy sector continues to make new highs above the rising 50 and 200-day moving averages. Price-based support lines up with the 50-day moving average; both are well below current price levels.

Relative to the S&P 500

The relative trend remains bullish, above the rising 50-day moving average and near the recent highs.
Growth vs Value (Large Cap) chart for March 25th research.

Consumer Staples

After cratering to the downside and subsequently rebounding, the defensive Staples are beginning to stall at the 200-day moving average. The 50-day moving average has shifted from rising to flat, highlighting the damage that has been done to the trend.

Relative to the S&P 500

The relative trend is also beginning to turn, breaking below the 50-day moving average.
Growth vs Value (Large Cap) chart for March 25th research.

Utilities

The bulls remain in control of the trend in Utilities as the group holds above the rising 50 and 200-day moving averages. Support is near 365. Above that level, odds favor an attack on the prior highs.

Relative to the S&P 500

The relative trend is bullish, above the rising 50-day moving average.
Growth vs Value (Large Cap) chart for March 25th research.

Health Care

The Health Care sector remains in consolidation with support near 1,450 and resistance near the 1,590 level. The group is below the 50 and 200-day moving averages, giving an edge to the bears.

Relative to the S&P 500

The relative trend is bullish but under pressure, as it tests support at the rising 50-day moving average.
Growth vs Value (Large Cap) chart for March 25th research.

Real Estate

Real Estate’s rebound from support at the pre-COVID peak appears to be stalling below the declining 50 and 200-day moving averages. The bears remain in control of the trend.

Relative to the S&P 500

On a relative basis, the group is below resistance and the 50-day moving average.
Growth vs Value (Large Cap) chart for March 25th research.

Take-Aways

Investing in the current market environment remains a game of finding and riding relative strength. That strategy continues to include avoiding the growth sectors of the market while being selective in the cyclical (Materials and Energy) and defensive sectors (Utilities).

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.