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The largest sector weight within the S&P 500 continues to remain under pressure as the series of lower lows and lower highs define the downtrend. The relative performance has shown early signs of improvement out of a potential bottom, but investors would be prudent to await further confirmation. Strength among sector components has shown an early boost, but will it be enough to power the sector out of the downtrend?

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S&P 500 Technology 

The Technology sector continues to decline below the falling resistance line and the declining 50-day moving average, continuing the downtrend for the S&P 500’s largest sector. Relative to the S&P 500, the group has broken out of the downtrend line of relative resistance highlighted in the previous note last month and the ratio’s rising 50-day moving average in an early bullish move.

Software and services continue to chop and grind around the 2,850 zone below the declining 50-day moving average, which has provided resistance for the space year to date. Relative to Technology, the group is beginning to falter in breaking down below the highlighted relative support zone but testing the rising 50-day moving average of the ratio.

Hardware and Equipment have found resistance at the declining 50-day moving average over the past several trading sessions after a rally back toward the indicator from the June lows. Relative to Technology, the group has recaptured the ratio’s declining 50-day moving average to the upside and heading toward relative resistance at the highlighted zone.

Semiconductors and Equipment continue to print lower lows and lower highs in a classic downtrend below the declining 50-day moving average. Relative to Technology, the group continues to underperform, trading below broken relative support and the ratio’s declining 50-day moving average.

Breadth

The percentage of Technology components with an RSI greater than that of the sector received a boost in yesterday’s trading session, crossing above the one-month moving average for the first time since early last month in an early sign of strength among individual sector components. There were 666 instances since 1989 where the percentage of Technology components with an RSI greater than that of the sector crossed above its one-month moving average for a median gain in the sector of 4.81%, with a 68.43%-win rate over the following quarter.

This note is a preview of our Thursday Sector Deep Dive. See our thoughts and more in the full report.

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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.