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Take-Aways:

For the past two weeks, we have been making the case that there is scope for a countertrend rally that takes the S&P 500 toward the 3,900 level. While the index has been choppy, it has regained the June lows. The key, however, is to have greater exposure to the groups that are leading. We have been highlighting Health Care and Energy as clear leaders. Last week we began to call attention to Financials and Industrials. Financials are beginning to outperform, and Industrials are on the verge of a relative breakout. Technology and Communication Services remains clear underperformers.

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Visiting the Sector Relatives

Information Technology

The Technology sector remains below broken support and the declining 50 and 200-day moving averages. These dynamics keep the bears in control of the larger trend.

Relative to the S&P 500

The relative trend remains below the 50-day moving average after breaking down from the consolidation zone to new cycle lows last week.

High Beta / Low Volatility chart for March 25th research.

Consumer Discretionary

The Consumer Discretionary sector trades below the 50 and 200-day moving averages but has established a support level near the pre-COVID highs. If the bulls are going to mount a counterattack, this is a logical spot for one to begin. A countertrend rally has an upside to the 1,200 mark.

Relative to the S&P 500

On a relative basis, Discretionary remains in a consolidation. However, the ratio has recently moved below the 50-day moving average and is below price-based resistance. More time is needed.

Discretionary / Staples (EW) chart for March 25th research.

Communication Services

The Communication Services sector remains below price-based resistance and the 50-day moving average as it trades well below the declining 200-day moving average. The door remains open to a test of the COVID lows.

Relative to the S&P 500

The relative trend is below the 50-day moving average, trading near all-time lows.

Lumber / Gold chart for March 25th research.

Materials

The Materials sector remains below the 50 and 200-day moving averages as it continues to battle with price-based support near the June lows. There is scope for a near-term rally, but it will be countertrend in nature, given a large amount of overhead resistance.

Relative to the S&P 500

On a relative basis, the group is fighting to regain the 50-day moving average above price-based support to keep the trend neutral for now.

Copper / Gold chart for March 25th research.

Financials

Financials are holding below the 50 and 200-day moving averages as they test support at the June lows and pre-COVID highs. The bulls need to recapture the 200-day moving average to make a stronger case.

Relative to the S&P 500

On a relative basis, the ratio is trading above support and the 50-day moving average. For investors who must be invested, this sector should be on the radar.

Small Caps / Large Caps chart for March 25th research.

Industrials

Industrials remain below the 50 and 200-day moving averages but are holding support near the 720 level that we have been highlighting. Bulls need to retake the 200-day moving average to make a more compelling case.

Relative to the S&P 500

The relative trend has rallied from the 50-day moving average as it trades in a consolidation. The series of higher lows is an encouraging development, but resistance must be broken for the group to take a leadership position.

Growth vs Value (Large Cap) chart for March 25th research.

Energy

The Energy sector is trading above support and the 50 and 200-day moving averages. The near-term trend remains choppy, but there is an upside bias that could take the group to new highs. A move below 470 negates the bull case.

Relative to the S&P 500

The group remains a leader with the ratio near recent highs above the 50-day moving average.

Growth vs Value (Large Cap) chart for March 25th research.

Consumer Staples

Consumer Staples is holding support near the 690 level as they trade below the declining 50 and 200-day moving averages. The bulls must reclaim the moving averages to make a more compelling case on an absolute basis. 

Relative to the S&P 500

The relative trend remains in a near-term consolidation but is holding above support and the rising 50-day moving average.

Growth vs Value (Large Cap) chart for March 25th research.

Utilities

Utilities remain below the now declining 50 and 200-day moving averages, and the group now has lost price-based support near the 325 level. The current move to the downside breaks the bullish trend that has been in place since the COVID lows.

Relative to the S&P 500

The relative trend is testing the rising 50-day moving average after being rejected at price-based resistance. The ratio must hold here if the group is going to reestablish a leadership position.

Growth vs Value (Large Cap) chart for March 25th research.

Health Care

Health Care is trading in a price-based support zone below the declining 50 and 200-day moving averages. Below 1,390, the bears will take full control. The bulls need to start by reclaiming the 50-day moving average.

Relative to the S&P 500

The relative trend remains strong as Health Care has been a less bad sector of the market. The ratio is above the 50-day moving average after holding support and has traded to a new high this week.

Growth vs Value (Large Cap) chart for March 25th research.

Real Estate

Real Estate remains below the declining 50 and 200-day moving averages but is holding support at the 210 level that we highlighted last week. This is a logical spot for a countertrend rally to begin.

Relative to the S&P 500

On a relative basis, the group has broken down, trading below the resistance and the 50-day moving averages. The early 2021 lows are in play.

Growth vs Value (Large Cap) chart for March 25th research.
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