There Is Still
a Lot of Work to Do

by | Mar 1, 2022

Key Points

  • Many Sectors Broke and Regained Support Last Week
  • Energy Continues to Lead
  • Staples and Utilities Exhibit Their Defensive Properties
  • Technology Is Stuck in Neutral
  • Industrials Show Promise on a Relative Basis

Visiting the Sector Relatives

Information Technology

The Technology sector held support at 2,600 last week before rebounding to stay in its current consolidation zone. The sector remains below the 50 and 200-day moving averages and resistance at 2,900. Given these dynamics, it is hard to make a bullish case at this point.

Relative to the S&P 500

The relative trend remains neutral, in a holding pattern between support at the October 2021 lows and the declining 50-day moving average. This position is unchanged on the week.

Consumer Discretionary

The Consumer Discretionary sector broke below the 1,390-level last week before staging a rebound. The sector has been making a series of lower highs and lower lows below resistance (1,490) and the moving averages. Until the 1,490 level is reclaimed, the bears appear to be in control of the trend.

Relative to the S&P 500

On a relative basis, Discretionary is still holding the 2021 low but remains below the declining 50-day moving average. Until that level is breached, it is hard to argue that this will be a leading sector.

Communication Services

The Communication Services sector remains below the declining 50 and 200-day moving averages, keeping the trend bearish. After a brief trip below support at the 230 level, the group has rebounded. Breaking above 250 would be a step in the right direction.

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 and near the lows of the past year. Until the moving average is reclaimed, the group will likely continue to lag.

Materials

Materials traded below the 510-support level last week before staging a rebound to close back in the consolidation zone. The group remains below the 50 and 200-day moving averages and has resistance near 545. It is hard to make an overly compelling bullish case.

Relative to the S&P 500

On a relative basis, Materials remain neutral, stuck between the rising 50-day moving average and price-based resistance.

Financials

Financials remain below the 50-day moving average but hold their ground at the 200-day moving average. This keeps the group in a consolidation zone, with the bulls and the bears battling for control of the trend.  

Relative to the S&P 500

On a relative basis, the group is fading after failing to hold the breakout level. Bulls want to see the 50-day moving average hold for the bullish relative trend to remain in place.

Industrials

Industrials broke support last week before rebounding back into their consolidation zone. The group remains below the 50 and 200-day moving averages. Breaking above the moving averages is needed before a bullish case can be made.

Relative to the S&P 500

The relative trend is holding the 50-day moving average. We would like to see a move above resistance to signal that it is taking a leadership position.

Energy

Energy remains the standout sector, trading back to recent highs after holding above support at the 490 level. The group is above the rising 50 and 200-day moving averages, keeping the bulls in control.

Relative to the S&P 500

The relative trend also remains strong, trading at a 52-week high, above the 50-day moving average.

Consumer Staples

Staples failed to achieve the breakout that was threatening last week and remains in a consolidation zone between the 50 and 200-day moving averages. Support is at 760; bulls want to see the index above 800 to have confidence that strength is likely to persist.

Relative to the S&P 500

The relative trend is pulling back to the breakout level, above the 50-day moving average. Holding these points will help the group maintain a leadership role.

Utilities

Utilities staged a sharp rebound last week, living up to its reputation as a defensive sector. The group regained the 200-day moving average but remained below the declining 50-day moving average. The trend is neutral until resistance near 355 is breached. 

Relative to the S&P 500

The relative trend is moving higher from the 50-day moving average, setting its sights on a breakout that would establish it as a leader.

Health Care

Health Care is trapped in a consolidation zone, below the moving averages, after rebounding from support near 1,460. Bulls want to see the 1,590-level breached as a pathway to attack the former highs.

Relative to the S&P 500

On a relative basis, the ratio is above the rising 50-day moving average but has been unable to break out. Moving above resistance would add the group to the leadership list.

Real Estate

Real Estate remains in a consolidation zone between 280 and 305 after briefly trading below support. The group is below the 50 and 200-day moving averages, making the bullish case difficult to make.

Relative to the S&P 500

On a relative basis, the group is below the 50-day moving average but above support, decidedly neutral.

Take-Aways:

Energy remains the best trend in the market. There are only four sectors that are trading above their respective 200-day moving averages. In many cases, absolute neutral trends are enough to produce leading relative trends. While it is encouraging to see many of the sectors regain support after cutting below last week, we want to see continuations to the upside to have confidence that these are more than counter-trend bounces.

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.