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Key Points

  • A Small Improvement in Communication Services
  • Discretionary Finds Support…Again
  • Material and Energy Feel the Heat
  • Financials and Industrials are Resilient
  • Defensive Sectors are a Mixed Bag

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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. As long as 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 is still bearish below resistance and the declining 50-day moving average.
High Beta / Low Volatility chart for March 25th research.

Consumer Discretionary

The Consumer Discretionary sector has made another trip to the pre-COVID lows, below the declining 50 and 200-day moving averages. It would not be a surprise to see a short-term bounce, but the bears are still in control.

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 continue to trade below their pre-COVID peak and the declining moving averages. The bullish case is still hard to make on an absolute basis.

Relative to the S&P 500

The relative trend is beginning to show early signs of improvement, making a higher high and higher low 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

Last week we noted that the bears were taking control of the Materials sector. This week we can claim that they are firmly in control of the trend after breaking support below the 50 and 200-day moving averages.

Relative to the S&P 500

On a relative basis, Material is now beginning to break lower. The ratio has moved 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 (slightly undercutting that level late last week). 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 holding 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

Last week he highlighted how the sellers had found the Energy sector. This week we can state that in a bear market, nothing is immune. The group was under intense pressure, closing below the 50-day moving average. There is room to the rising 200-day moving average and the pre-COVID highs.

Relative to the S&P 500

The relative trend remains bullish, testing the rising 50-day moving average. The ratio is also above support at the breakout level.
Growth vs Value (Large Cap) chart for March 25th research.

Consumer Staples

Staples continue to trend toward support in the 660 – 700 zone, below the 50 and 200-day moving averages. The bears have taken control of the trend in this defensive sector.

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 cascaded lower after breaking support at the re-COVID highs. The group is below the 50 and 200-day moving averages, with the former beginning to roll over. The bears have full control of this match.

Relative to the S&P 500

The relative trend is testing support at the rising 50-day moving average. As bad as the absolute trend has become, the relative trend remains resilient. 
Growth vs Value (Large Cap) chart for March 25th research.

Health Care

The bears remain in control of the Health Care sector after support was lost last week. The group is below the moving average, and the 50-day is in the process of crossing below the 200-day.

Relative to the S&P 500

The relative trend is still bullish after holding support at the rising 50-day moving average. Another group that is proving to be “less bad.”
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 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

Nothing is immune in a bear market. Eventually, the sellers come for the last holdout and the groups that had been performing well. In this case, the bears have found the Energy sector, putting its trend under pressure. At the same time, there is a small sign of relative improvement in one of the first sectors to sustain damage, Communication Services. For now, finding what is “less bad” remains the key to investing in the current environment.
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