Three Sectors Stand Out
with Stocks Under Pressure

by | Feb 22, 2022

Key Points

  • Only Three Sectors Are Above Their 200-Day Moving Average
  • Energy, Financials, and Staples Remain Leaders
  • Materials Show Signs of Life on a Relative Basis
  • A Communication (Services) Breakdown
  • Real Estate Trades to a Key Support Level

Visiting the Sector Relatives

Information Technology

The Technology sector continues to trade between support near 2,600 and resistance near 2,900 but closed lower last week. The declining 50-day moving average is now in line with price-based resistance. Last week saw the sector close below the 200-day moving average as well. Breaking support would put the bears in control of the trend.

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.

Consumer Discretionary

The Consumer Discretionary sector has support at the 1,390 level and resistance near 1,490. Price remains below the declining 50-day moving average while resistance lines up with the 200-day moving average. These are levels that must be retaken for the bulls to gain control of the trend.

Relative to the S&P 500

On a relative basis, Discretionary is still trying to bounce from 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 and is now in the process of breaking support at the 230 level. 

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.

Materials

Materials remain in the consolidation that has been in place since last April, below resistance and the declining 50-day moving average. The sector is also trapped below the 200-day moving average. The trend is neutral until these levels are broken. Should near-term weakness persist, there is support at the January lows.

Relative to the S&P 500

On a relative basis, Materials remain neutral but showed some signs of improvement last week. Breaking resistance could set the stage for further leadership.

Financials

Financials closed below the 50-day moving average but remain above the 200-day moving average, which is still rising. This keeps the trend bullish despite being choppy in the near term. 

Relative to the S&P 500

On a relative basis, the group remains a leader, holding above the breakout level and the rising 50-day moving average.

Industrials

Industrials are testing support at the lower end of the consolidation zone, below the declining 50-day moving average. If there is going to be a rebound, this is a logical place for one to begin. Should support give way, the bears will have taken control of the trend as the price is also below the 200-day moving average.

Relative to the S&P 500

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

Energy

The Energy sector took a breather last week but remained in a bullish trend above the rising 50 and 200-day moving averages. Near-term support moves up to the 490 level.

Relative to the S&P 500

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

Consumer Staples

Staples are threatening a breakout above the rising 50 and 200-day moving averages, as the bulls control the trend for this defensive sector. Support is near the 200-day moving average at the 750 – 760 zone.

Relative to the S&P 500

The relative trend broke higher last week, closing above resistance to establish the sector as a leader.

Utilities

Utilities weakened further last week. The group is below the 50 and 200-day moving averages as it remains in a saw tooth consolidation.

Relative to the S&P 500

The relative trend also remains choppy. There is a very slight upside bias above the 50-day moving average, but breaking resistance is required to declare this group a leader.

Health Care

Health Care continues to fade from the 50-day moving average and has also lost the 200-day moving average. Despite these drawbacks, the sector remains in a neutral trend between support near 1,460 and resistance near 1,590. 

Relative to the S&P 500

On a relative basis, we continue to give a slight edge to the bulls as the ratio holds above the rising 50-day moving average. Taking out resistance would establish a leadership position.

Real Estate

Real Estate remains in a consolidation zone between 280 and 305 as it trades below the declining 50-day moving average and the 200-day moving average. Support is in the process of being tested as the new week begins; a break would put the bears in control of the trend. 

Relative to the S&P 500

On a relative basis, the group is below the 50-day moving average but has held support, setting the stage for a possible recovery.

Take-Aways:

Adding the 200-day moving average to our work this week reveals only three of eleven sectors trading above this measure of a long-term trend. They are the same sectors where we have been highlighting strength for the past few weeks, Energy, Financials, and Consumer Staples. Defensive groups such as Utilities and Real Estate held up on a relative basis last week, but this simply meant less bad as equities were under pressure broadly.

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.