Key Points
- Near-Term Support is Being Tested for Many Sectors
- Defensive Sectors Wake Up as Equities Pullback from Record Levels
- Cyclicals Continue to Fade on a Relative Basis
- The Relative Potential in Health Care is Intriguing
- Highlighting the Pharmaceuticals
Chart in Focus
For the past few weeks, we have noted that Health Care is building a relative base. Within the sector, we have pointed out Life Sciences Tools and Services and today we highlight the pharmaceuticals industry. The group is in an uptrend, above the rising 50-day moving average. More importantly, on a relative basis, Pharma appears to be making the turn vs. the S&P 500. As the prospects for a “risk-off” market continue, odds favor Pharma outperforming.
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 has pulled back from record levels, along with the broader market, but remains above the breakout level and the rising 50-day moving average. Both are key levels for the uptrend from the March 2020 lows.
Relative to the S&P 500
On a relative basis, the ratio remains above the 50-day moving average, and the near-term breakout level. Above these measures of support, the odds favor Technology continuing to outperform.
Consumer Discretionary
The Consumer Discretionary sector has also pulled back from record highs and is now testing support at the 50-day moving average. The group has fallen back into the short-term consolidation zone, leaving the possibility that the recent highs were a false breakout.
Relative to the S&P 500
On a relative basis, the group remains in a downtrend, yet to break the series of lower highs and lower lows that has been in place since last October. However, the ratio continues to trade above the 50-day moving average, increasing the odds that the downtrend will be broken, but more time is needed.
Communication Services
The Communication Services sector has pulled back from record levels but remains above short-term support and the rising 50-day moving average. Holding above the support zone between 255 and 260 keeps the uptrend from the March 2020 lows in place.
Relative to the S&P 500
The relative ratio has not been able to sustain a breakout and establish its own bullish trend. Remaining above the 50-day moving average is a bullish development but we want to see a stronger relative trend emerge.
Materials
Materials remain below the 50-day moving average but are now testing the price-based support zone between 490 and 500. If this group were to stage a rebound, this would be a logical spot for it to begin. A break of this support level would likely indicate that the uptrend from the March 2020 lows has come to an end.
Relative to the S&P 500
On a relative basis, the group remains below the 50-day moving average which is declining. The ratio continues to test the relative support level that we have been highlighting. A break of support would confirm that this group has shifted into a lagging position.
Financials
Financials have moved further below the 50-day moving average and are now testing the support level that we have been highlighting.
Relative to the S&P 500
On a relative basis, the group remains below the 50-day moving average and has traded below support. Time will be needed to repair the damage that has been done to the relative trend.
Industrials
The Industrials sector has moved lower over the past week, remaining below the 50-day moving average. The group is testing price-based support, a break of which would open the door to a move down to the 700 – 730 range.
Relative to the S&P 500
On a relative basis, the group continues to move to the downside, trading below a declining 50-day moving average.
Energy
For the Energy sector, old support (the 2019 lows) has proven to be new resistance as the group continues to fade from the 400 level. The 50-day moving average, which has been an upside obstacle as well, is beginning to turn lower.
Relative to the S&P 500
On a relative basis, the ratio remains below the 50-day moving average while continuing to hold below price-based resistance.
Consumer Staples
The Consumer Staples sector is above price-based support and the rising 50-day moving average as it trades just below record levels.
Relative to the S&P 500
On a relative basis, the group has made a sharp move to the upside, benefitting from its haven status. Perhaps this is the start of a base building process, but the trend is not bullish yet.
Real Estate
After breaking the near-term consolidation to close at a record high, Real Estate has pulled back to test support at the breakout level. Below that, the rising 50-day moving average is a key level that defines the current bullish trend.
Relative to the S&P 500
On a relative basis, Real Estate is moving further beyond the rising 50-day moving average. The ratio is above the breakout level, increasing the odds that outperformance will continue.
Utilities
The Utilities sector is hovering around the 50-day moving average between support near the 300 level and resistance at 345.
Relative to the S&P 500
The relative trend remains bearish, below the declining 50-day moving average despite haven buying over the past week.
Health Care
The Health Care sector has pulled back from record levels but remains above support at the breakout level, near 1,460. The rising 50-day moving average should also provide a measure of support should the pullback deepen.
Relative to the S&P 500
On a relative basis, the group remains in a base-building process, above the 50-day moving average but below important resistance.
Take-Aways:
From a trend perspective, many sectors are now testing key support levels. On a relative basis, cyclical sectors continue to fade while the defensive groups have attracted capital. While these haven sectors have not broken their relative downtrends, we have them front and center on our radar.