Watch the Relative Trends
in the Defensive Sectors

by | Dec 7, 2021

Key Points

  • New Highs for the Road and Rail Index
  • REITs, Utilities and Staples Trade to 21-Day Relative Highs
  • Technology and Discretionary Hold Their Leadership Positions, for Now
  • Cyclicals Try to Regain Broken Support
  • Communication Services Are Now in a Bearish Trend

Chart in Focus

The S&P 500 Road and Rail Index traded to a new 63 and 126-day high yesterday on both an absolute and relative basis. This has played out amidst the narrative of extreme supply chain bottlenecks, proving once again that following price over the prevailing narrative is often a better strategy. The index is above the 50-day moving average, as is the relative trend, which is likely to make new highs as well.

Visiting the Sector Relatives

All the charts below look at the sectors of the S&P 500 on an absolute basis (top panel) and relative to the S&P 500 (bottom panel) to get a sense of the leaders, laggards, and shifts in trends. We include the 50-day moving average on each.

Information Technology

Despite a throwback since peaking on November 22nd, the Technology sector continues to trade in an uptrend with a clearly defined level (2,810) that would negate this view. The index remains above the rising 50-day moving average and is attempting to make a short-term stand at the early November lows.

Relative to the S&P 500

The relative trend has also pulled back over the past two weeks but remains above the breakout level. If the breakout level holds as support, Technology will retain a leadership position.

Consumer Discretionary

The Consumer Discretionary sector broke short-term support to trade down to the rising 50-day moving average, which is doing an admirable job of keeping the bullish trend in place. The key for the group will be to close above 1,600 to keep the ball in the hands of the bulls.

Relative to the S&P 500

On a relative basis, Discretionary is testing the short-term breakout level from above. If this line in the sand holds, odds favor the group holding a leadership position.

Communication Services

The Communication Services sector has broken support at the 265 level, putting the bears in control of the trend. The declining 50-day moving average confirms that the trend is now bearish.

Relative to the S&P 500

Relative to the S&P 500, the group remains in a downtrend, and rallies are to be treated as countertrend in nature until the 50-day moving average is retaken.

Materials

Materials are trying to bounce from the 50-day moving average but remains below the breakout level. As long as this false move remains in place, it is difficult to argue that the trend is bullish.

Relative to the S&P 500

On a relative basis, Materials remain neutral, stick between the 50-day moving average and upside resistance. It can’t be classified as a leader until resistance is overcome.

 

Financials

The false breakout remains in place for the Financials, and the group is below the 50-day moving average. Until these levels are overcome, the trend is neutral, and we are content to let the bulls and the bears battle it out.

Relative to the S&P 500

The relative trend remains below the 50-day moving average as it tests important support. A breakdown points to a new trend of underperformance.

Industrials

The Industrial sector also remains below the breakout level, keeping the false move on the table for now. The group is waging war with the 50-day moving average to keep the trend neutral.

Relative to the S&P 500

The relative trend is in the midst of a bounce apartment that we will treat as a countertrend until brown support and the 50-day moving average are eclipsed.

Energy

The Energy sector is fighting hard to regain broken support but remains below the 50-day moving average to keep the trend neutral.

Relative to the S&P 500

The relative trend remains below resistance and the 50-day moving average. For now, the trend is neutral but with a bearish bias.

Consumer Staples

Consumer Staples have staged a strong rally back to broken support after a brief undercut of the rising 50-day moving average. Odds favor a run to new highs.

Relative to the S&P 500

The relative trend is reversing higher to retake the 50-day moving average. It is interesting to note that Staples traded to a new 21-day relative high during a rebound for the market yesterday.

Real Estate

The Real Estate sector is holding above its breakout level and the rising 50-day moving average. Odds favor a move to new highs.

Relative to the S&P 500

On a relative basis, the group is moving further beyond the 50-day moving average as it remains above support. Real Estate made a new 21-day relative high yesterday.

Utilities

Utilities have retaken the breakout level after a successful test of the 50-day moving average. At the same time, the moving average is beginning to curl higher. Above the 345 level, new highs are in play.

Relative to the S&P 500

The relative trend has made a turn to the upside to regain the 50-day moving average. Utilities also traded to a new 21-day relative high yesterday.

Health Care

Health Care is holding below short-term support but has fought its way back above the declining 50-day moving average. The trend is neutral and not overly exciting.

Relative to the S&P 500

On a relative basis, Health Care is trading below the steadily declining 50-day moving average, which is likely to act as resistance in the near term.

Take-Aways:

It is interesting to note that during a positive session for the S&P 500 yesterday, three defensive groups (Utilities, Real Estate, and Staples) traded to 21-day relative highs. While one day does not make a trend, equity bulls would prefer not to see defensive sectors leading the charge during rally attempts. Technology and Discretionary remain in uptrends with clearly defined levels that would negate the bullish view. Cyclicals are battling but remain below their breakout levels.

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.