Key Points

  • Technology Remains Our Favorite Trend
  • Equal Weight Tech Debunks a “Lazy Argument”
  • Defensive Sectors Continue to Move Higher
  • Health Care Is New Leadership
  • The Reflation Trade Loses More Ground to the S&P 500

Chart in Focus

A lazy argument that many have made this year is that there are only a few “big tech stocks” holding the market aloft. However, one look at the Equal Weight S&P 500 Technology sector debunks this view. The index has been in a steady uptrend all year (look at that 50-day moving average) and traded to a new high yesterday.

On a relative basis, the ratio is slightly higher than where it started the year (blue), also disproving the last argument.

Visiting the Sector Relatives

Absolute trends are in the top panel, and relative trends are below.

Information Technology

Last week we highlighted the clean, bullish setup for the Technology sector. The group did not disappoint as it has move to record highs above the rising 50-day moving average. Short-term support moves up to 3,065, while 2,900 remains the key price point for bulls.

Relative to the S&P 500

The relative trend remains bullish, above price and moving average support. Odds favor continued leadership on the part of the group over the near term.

Consumer Discretionary

The Consumer Discretionary sector has turned the tables on the bears by regaining the rising 50-day moving average and price support. Above 1,650, the odds of a test of the record highs increased.

Relative to the S&P 500

On a relative basis, Discretionary has lost its leadership position and must do work to regain broken support levels and the 50-day moving average before it becomes compelling.

Communication Services

The Communication Services sector continues to fight to regain bullish positioning, as it has now regained the 50-day moving average. We also note that the moving average has shifted from declining to flat. This is the first step in turning the tide in favor of the bulls. A break of the 280 level opens the door to new highs.

Relative to the S&P 500

Relative to the S&P 500, the group remains in a downtrend as it tests the low from early 2021. A lot of work needs to be done before this sector becomes compelling on a relative basis.

Materials

Materials have regained the 50-day moving average and the 560-breakout level. While we know that there is always a risk that a breakout is a false move, we have to hold a bullish view on the absolute trend if 560 is maintained.  

Relative to the S&P 500

On a relative basis, Materials also remain neutral, battling the 50-day moving average below price-based resistance.

Financials

Financials remain below the 50-day moving average as they try to regain broken resistance. The absolute trend is sloppy, and while the series of higher lows hints at an upside bias, the story is more compelling above the 670-mark.

Relative to the S&P 500

The relative trend remains below the 50-day moving average as it breaks support. This can hardly be described as a leader.

Industrials

The Industrial sector remains trapped in the consolidation zone that has been in place since May. The index is above the 50-day moving average, which has not established a clear trend for months.

Relative to the S&P 500

The relative trend remains bearish. The ratio is trading below resistance and the declining 50-day moving average. These are levels that must be overcome before we can make the case that the bearish trend is reversing.

Energy

The Energy sector is still fighting to regain the breakout level in the near term. The group is below the 50-day moving average, which is beginning to curl to the downside. The onus on the bulls to reverse the tide quickly.

Relative to the S&P 500

The relative trend remains below resistance and the 50-day moving average. For now, the trend is neutral, but the bias is to the downside.

Consumer Staples

Sometimes it’s easy to see when the bulls are in control; this is one of those times for Consumer Staples. The 50-day moving average is moving toward the support zone near 760. As we wrote last week, if the price is above that level, the trend is bullish.

Relative to the S&P 500

The relative trend is holding above the 50-day moving average to keep the bearish to bullish transition in place.

Real Estate

Another “clean setup” that we highlighted last week was Real Estate. The trend is bullish, and the bulls will remain in control if the price is above 305, a level that is being approached by the rising 50-day moving average.

Relative to the S&P 500

On a relative basis, the group has failed to hold the break above the June highs. While the bulls retain the benefit of the doubt above the 50-day moving average, we don’t like to see false breakouts.

Utilities

Utilities have moved above the breakout level, putting the highs in play. The 50-day moving average is in line with the key 345 level that we have been highlighting. Above this mark, the bulls are in control.

Relative to the S&P 500

The relative trend has pulled back to the 50-day moving average, which has shifted from declining to flat. There is more work that needs to be done, but the trend is improving in the near term.

Health Care

Health Care completes the trifecta of “clean setups” outlined in last week’s Note by trading to new highs. The trend is bullish above 1,600, while the rising 50-day moving average has moved into the consolidation zone.

Relative to the S&P 500

On a relative basis, Health Care continues to transition into a leader; odds favor a continuation of this trend in the near term.

Take-Aways:

Technology and Defensive sectors lead the charge on the heels of the clean bullish setups that we highlighted on these pages last week. Meanwhile, the media is full of stories about inflation, but the group that “should do the best” in that environment continues to weaken on a relative basis.

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.