Take-Aways:
The S&P 500’s largest sector weighting, Technology, continues its trend of underperformance in breaking long-term relative support to the downside over the past week of trading. Similarly, Consumer Discretionary and Communication Services remain under pressure. Defensives such as Health Care and Consumer Staples remain strong on a relative basis, while cyclicals such as Materials, Industrials, Financials, and Energy have re-emerged as relative leaders once again.
Visiting the Sector Relatives
Information Technology
The Technology sector continues to struggle below long-term resistance at the 2,180 zone and declining 50 and 200-day moving averages. Simply put, equity bulls need to see more from the S&P 500’s largest sector weighting in order to have confidence that the index can stage a lasting reversal.
Relative to the S&P 500
On a relative basis, the group has broken below the May relative lows of last year to the downside this week below the ratio’s declining 50-day moving average. For those who must remain invested, this sector remains an underperformer, and risk management should be key.
Consumer Discretionary
The Consumer Discretionary faces a key test of long-term support at the 1,050 zone and the pre-COVID highs below declining 50 and 200-day moving averages. Should this level give way to the downside, there is scope for the COVID lows to be tested.
Relative to the S&P 500
Relative to the S&P 500, the group continues its relative descent of underperformance below the ratio’s declining 50-day moving average, heading for a test of the May relative lows of this year.
Communication Services
The Communication Services sector continues its steep decline after finding long-term resistance at the 175 level late last month, with room for the COVID lows. While there is room for a rally back to this level due to the sheer distance between price and the 200-day moving average, such rallies are likely counter trend in nature.
Relative to the S&P 500
On a relative basis, the group has significantly underperformed over the past week of trading as the sector is hovering near all-time lows relative to the S&P 500.
Materials
Materials continue to rally above the declining 50-day moving average with room for the 200-day moving average around the 500 zone. For those who must remain fully invested, this is likely a sector to keep on the radar screen.
Relative to the S&P 500
The relative trend continues to improve as the ratio drives higher from relative support at the highlighted zone and the ratio’s rising 50-day moving average.
Financials
The Financials sector continues trading above long-term support at the pre-COVID highs at the 510 zone and the now-rising 50-day moving average, with the 200-day moving average at the 575 zone set in its sights.
Relative to the S&P 500
On a relative basis, the group continues to outperform as the ratio trades above the rising 50-day moving average, setting up for a test of relative resistance at the highlighted zone.
Industrials
The Industrials sector has recaptured the declining 200-day moving average to the upside over the past week of trading in a bid to reverse the downtrend from bearish to bullish. While this has been a positive development, investors with a keen eye will note that similar price action played out in August and ultimately failed to the downside. More time is needed above the 200-day moving average for investors to have increased confidence in the space.
Relative to the S&P 500
The relative trend continues to improve as the ratio breaks out above long-term relative resistance at the highlighted zone above the May relative highs and the ratio’s rising 50-day moving average. For those who must remain invested, this is a sector to keep on the radar screen.
Energy
Energy has broken out of the June highs of this year at the 700 mark above rising 50 and 200-day moving average, emerging out of the months-long consolidation as a leader. Here too, this is a sector that fully invested market participants should keep on their radar screen.
Relative to the S&P 500
The relative trend continues to improve as the relationship trades above long-term relative support at the highlighted zone above the ratio’s rising 50-day moving average.
Consumer Staples
The Consumer Staples sector is trapped above the declining 50-day moving average and below the declining 200-day moving average as the space struggles to find a directional bias. Should the group clear the 200-day moving average to the upside, there is room for the August highs near the 800 zone.
Relative to the S&P 500
On a relative basis, the group continues to outperform in trading above the ratio’s rising 50-day moving average, heading for a test of relative resistance at the top end of the highlighted relative trading range. Should the group emerge from the relative range to the upside, it could add increased evidence of a lack of risk appetite within the equity space and is a potential development for investors to keep in mind.
Utilities
After facing rejection at the declining 50-day moving average over the past week of trading, Utilities are heading for another test of long-term support at the 325 zone. Bulls in the space are looking for this level to hold, while bears are looking for the group to slice through to the downside yet again.
Relative to the S&P 500
The relative trend continues to falter below long-term relative resistance at the highlighted zone and the declining 50-day moving average, as the former outperformer continues its relative bullish to bearish transition.
Health Care
While the space has not been accused of having the most attractive trend on an absolute basis, continuing to hold ground above the 200-day moving average has been no small feat in this market environment. Should the group break out of the 1,560 zone to the upside, there is room for the April highs at the 1,675 zone to be tested.
Relative to the S&P 500
On a relative basis, the group continues trading above both short-term relative support and the ratio’s rising 50-day moving average, despite giving up some of the recent relative gains over the past week of trading.
Real Estate
After rallying from long-term support at the 210 zone, the Real Estate sector is fighting hard to recapture the steeply declining 50-day moving average to the upside over the past week of trading with no avail. Due to the sheer distance between price and the declining 200-day moving average, it would not be surprising to see a further rally, although it would likely be counter trend in nature.
Relative to the S&P 500
The relative trend has rallied from the Q1 2021 relative lows below the declining 50-day moving average, but this has done little to change the prevailing downtrend of underperformance. More time is needed for the group to heal from the relative damage.
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