The Focus Remains
on What Is “Less Bad”

by | May 10, 2022

Key Points

  • Growth Sectors Break Support and Trade to Cycle Lows
  • Cyclicals Remain Mixed, Sellers Find the Energy Patch
  • Materials and Industrials Lead by Being “Less Bad”
  • Defensive Groups are Relative Leaders
  • Some Groups are Moving Toward the Pre-COVID Highs

Visiting the Sector Relatives

Information Technology

The Technology sector has made a clean break below support at 2,500 as it continues to trade below the declining 50 and 200-day moving averages. Yesterday’s close marks a new six-month low for the index as the bears are in control of the trend.  

Relative to the S&P 500

The relative trend is bearish below resistance and the declining 50-day moving average.

Consumer Discretionary

The Consumer Discretionary sector traded to a new low yesterday after breaking support below the 50 and 200-day moving averages last week. The bears are in clear control of the trend with a series of lower highs and lower lows in place.

Relative to the S&P 500

On a relative basis, Discretionary is trading near the lows of the current cycle, below resistance, and the declining 50-day moving average.

Communication Services

Communication Services remained below the declining 50 and 200-day moving averages and traded to a new low yesterday. The index is tracking toward a logical support level at the pre-COVID highs.

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.

Materials

After a second false breakout, the Materials sector has moved back into the consolidation zone and trades below the 50 and 200-day moving averages. Support is near the 500 level, and resistance is near 565. Between these two levels the trend is neutral.

Relative to the S&P 500

On a relative basis, the bulls continue to hold an advantage. The ratio is above resistance and the 50-day moving average.

Financials

Financials have broken short-term support, below the 50 and 200-day moving averages, opening the door to a move to the pre-COVID highs near 520.

Relative to the S&P 500

On a relative basis, the group remains in a choppy consolidation, but the group is still below the declining 50-day moving average. The bears have a slight edge in this regard.

Industrials

Industrials are stuck in a consolidation zone below the 50 and 200-day moving averages. Resistance is near 830, and support comes into play near 760. 

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.

Energy

The Energy sector traded to a new high for the cycle last week before undergoing intense selling pressure yesterday. The group is now testing the rising 50-day moving average, and support, above the rising 200-day moving average. Above 530, the bulls keep the benefit of the doubt.

Relative to the S&P 500

The relative trend remains bullish, above the rising 50-day moving average, and traded to a new high last week. The bulls keep the ball despite yesterday’s pullback.

Consumer Staples

After coming under pressure last week, the Consumer Staples sector has broken below support at the breakout level. The index will now contend with the rising 50-day moving average, which is above the rising 200-day moving average.

Relative to the S&P 500

The relative trend is bullish as the group remains “less bad.” The ratio is above the rising 50-day moving average and traded to a new high for the cycle yesterday.

Utilities

Utilities are trying to stabilize at support just below the rising 50-day moving average. The index remains above the rising 200-day moving average, and the breakout is still technically in place. There is a very slight edge for the bulls in the group. 

Relative to the S&P 500

The relative trend is bullish, above the rising 50-day moving average and trading at a new high for the cycle.

Health Care

After a second false breakout and a move below the moving averages, Health Care is pushing toward support at the lower end of the consolidation zone. The trend is neutral with a bearish bias.

Relative to the S&P 500

On a relative basis, the ratio is above support and the rising 50-day moving average as it threatens a fresh breakout.

Real Estate

Real Estate continued lower this week after losing support and the moving averages in the prior week. The door is now open for a move back to the pre-COVID highs.    

Relative to the S&P 500

On a relative basis, the group is beginning to lose its leading position as it moves below the 50-day moving average and support.

Take-Aways:

The growth areas of the market remain under pressure on an absolute and relative basis, and it is becoming clear that time will be needed to repair the technical damage that has been done. Cyclical groups are now neutral as even Energy could not escape the grip of the sellers in the market. We have noted that investors are now playing a relative game. In this market regime, that points to leadership on the part of the defensive sectors.  

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.