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Key Points

  • Continued Improvement in Communication Services
  • Materials Break Lower
  • If Energy is Going to Rebound, This Is the Place
  • Financials and Industrials Hold Their Ground
  • Defensive Sectors Do Their Job in a Rough Environment

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Visiting the Sector Relatives

Information Technology

The bears remain in control of the trend in the Technology sector as the group trades below the 50 and 200-day moving averages as well as resistance near 2,500. If the price is below 2,500, there is downside potential to the 1,800 – 1,900 zone.

Relative to the S&P 500

The relative trend has improved slightly and is beginning to build a base. At the same time, the ratio has moved above the 50-day moving average. Regaining resistance would be a bullish sign on a relative basis.
High Beta / Low Volatility chart for March 25th research.

Consumer Discretionary

The Consumer Discretionary has been holding support at the pre-COVID highs but remains in a bearish trend below the declining 50 and 200-day moving averages. Until the price is above 1,300, it is hard to make a bullish case for the group.

Relative to the S&P 500

On a relative basis, Discretionary remains in a downtrend, below the declining 50-day moving average.
Discretionary / Staples (EW) chart for March 25th research.

Communication Services

Communication Services stocks are trading around the pre-COVID levels but have failed to retake the 50-day moving average, which is well below the 200-day moving average.

Relative to the S&P 500

The relative trend continues signs of improvement, making higher highs and higher lows since bottoming in April. The ratio has also moved above the 50-day moving average. In this case, improvement means “less bad.”
Lumber / Gold chart for March 25th research.

Materials

The bears remain in control of the trend in the Materials sector following the clean break of support. Price is below the declining 50 and 200-day moving averages, and there is room for the pre-COVID peaks.

Relative to the S&P 500

On a relative basis, the ratio is trending below the 50-day moving average after failing at resistance.

Copper / Gold chart for March 25th research.

Financials

Financials continue to test support at the pre-Covid highs. This is a logical spot for a countertrend rally to unfold, but the bears are in control with price below the moving averages and resistance at 590. 

Relative to the S&P 500

On a relative basis, the group remains in a consolidation. The ratio has held support but must retake 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 testing support at the pre-COVID peak, below the moving averages, as they trade in a consolidation. A countertrend bounce can’t be ruled out. But the bears still have the upper hand.

Relative to the S&P 500

The relative trend is wrestling with 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 swift selloff in the Energy space has pushed the group to the rising 200-day moving average, which is above the pre-Covid high. If the group is going to reassert strength, this is the place for a rebound to begin. Regaining the 50-day moving average would set the stage for a run to new highs. 

Relative to the S&P 500

The relative trend remains bullish and is now under pressure, below the 50-day moving average and the pre-COVID levels.
Growth vs Value (Large Cap) chart for March 25th research.

Consumer Staples

After finding support near 700, Staples have rallied back to the 50-day moving average, which is below the 200-day moving average. Breaking above the moving averages would open the door to an attack on the highs.

Relative to the S&P 500

The relative trend remains resilient as it holds above the rising 50-day moving average. Once again, outperformance here is a function of being “less bad.”
Growth vs Value (Large Cap) chart for March 25th research.

Utilities

Utilities have rebounded to resistance and are now stuck between the moving averages. The trend here is neutral, awaiting a decisive break in either direction.

Relative to the S&P 500

The relative trend is testing support at the rising 50-day moving average. This defensive group is fulfilling its role in a bearish market.
Growth vs Value (Large Cap) chart for March 25th research.

Health Care

The Health Care group has regained broken support and the 50-day moving average. The sector will now battle with the flat 200-day moving average as it tries to move to new highs.

Relative to the S&P 500

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

Real Estate

Real Estate remains under pressure after breaking below the pre-COVID peaks. The index is below the 50 and 200-day moving averages, and odds favor the further downside. 

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

I wish that I could say that much has changed since I last authored this note on June 21st, but I can’t make that claim. Absolute trends remain weak across sectors, forcing investors to continue to find what is “less bad” in a bear market. Health Care, Utilities, and Staples continue to fit the description of “less bad,” playing their part as defensive havens in a turbulent environment. At the same time, Communication Services continue to improve on a relative basis.

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