Key Points

    • Hardware is the Latest Area of Technology to Catch our Attention
    • Cyclical Groups are Testing Important Levels, Will They Hold?
    • Still Waiting on a Relative Breakout for Communication Services
    • Defensive Groups Remain Weak, But Not Real Estate
    • Health Care is a Relative Trend Worth Watching

Chart in Focus

Despite the rally in the equity market yesterday, only one industry group traded to a new 21-day relative high, the S&P 500 Technology Hardware and Equipment Index. The group remains in a consolidation that has been playing out since the end of January, oscillating around the rising 50-day moving average.

On a relative basis, the trend is not yet compelling, but we are mindful of a possible shift beginning to take hold. The ratio has regained the 50-day moving average and remains above price-based support. A break above the April highs would serve to complete a bearish to bullish transition, setting the stage for the group to regain a leadership position.

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

On an absolute basis, the Technology sector is knocking on the door of a new high, which would break a two-month consolidation. The group is above the rising 50-day moving average and has price-based support near 2,300.

Relative to the S&P 500:

On a relative basis, the ratio remains above the 50-day moving average, which is shifting from declining to flat. Thus far, support at the lows of the consolidation range is holding. We look for a break of the April highs to confirm a change of trend.

Consumer Discretionary

The Consumer Discretionary sector remains below resistance and is testing the 50-day moving average, as the group is unable to break the consolidation on an absolute basis.

Relative to the S&P 500:

The relative trend remains to the downside, as the ratio trades below the declining 50-day moving average (currently acting as resistance). The ratio has yet to break the series of lower highs and lower lows and, until it does, it is hard to be bullish on this sector.

Communication Services

The Communication Services sector is in the process of pulling back from record levels but remains in an uptrend on an absolute basis. The group is above the rising 50-day moving average, and price-based support is in the 240 – 245 zone.

Relative to the S&P 500:

On a relative basis, the ratio remains in a consolidation, thus far unable to decisively break out. The ratio is above the rising 50-day moving average and has been making higher lows of late. Odds favor a move to the upside.

Materials

Materials have broken below the 50-day moving average which is still rising for now. Price-based support near the 500 level will be key for the bulls to defend in the near-term. Below that mark, the trend will have reversed, and further weakness would be expected.

Relative to the S&P 500:

On a relative basis, the group also remains below the 50-day moving average which is beginning to roll over. The ratio remains above price-based support. “Reflation” bulls want to see this group quickly regain a leadership position.

Financials

Financials are testing the level of a deeper pullback which we highlighted in this note last week. Thus far, the 580 level is holding but we note that the group is now below the 50-day moving average.

Relative to the S&P 500:

Financials continued lower after breaking below the 50-day moving average last week. Important support is now being tested and should this level give way, the relative trend will have turned to the downside. The ratio is below the 50-day moving average which is shifting from rising to flat.

Industrials

The Industrials sector is in the process of testing and holding support near the 830 level that we have been highlighting. The group is below the 50-day moving average which is beginning to shift from rising to flat.

Relative to the S&P 500:

On a relative basis, the group remains below price-based and moving average support (now resistance). At the same time, the 50-day moving average is now declining.

Energy

The Energy sector was not immune to the weakness in the cyclical areas of the market last week, but we will make the case that it held up the best. The group remains above the rising 50-day moving average and on the cusp of breaking above resistance. 

Relative to the S&P 500:

On a relative basis, the ratio remains between the flat 50-day moving average and price-based resistance.

Consumer Staples

Staples are moving lower from record highs, continuing the consolidation that we pointed out last week. The group has lost the 50-day moving average in the near-term but remains above support at the breakout level in the 690 – 700 range.

Relative to the S&P 500:

The group continues to consolidate on a relative basis, trading below the 50-day moving average. It appears that more time is needed for a base to build.

Real Estate

Real Estate remains in a strong uptrend, and one of the best areas of the equity market in the near-term, above the steadily rising 50-day moving average. Price-based support moves up to the 265 – 270 range.
 

Relative to the S&P 500:

The relative trend in Real Estate is bullish, with the group trading above the rising 50-day moving average and price-based support.

Utilities

The Utilities sector failed at the 50-day moving average and remains below near-term resistance at the 345 level. Above that, the next test would be around the pre-pandemic highs near 360. On the downside, support is near the 300 level.

Relative to the S&P 500:

The relative trend remains bearish, with the ratio below the declining 50-day moving average and price-based resistance.

Health Care

The Health Care sector remains in an absolute uptrend, above the rising 50-day moving average, and on the verge of trading to record highs. The group remains above the key price level in the 1,370 – 1,390 zone.

Relative to the S&P 500:

The relative trend is flat as the base-building process continues. The ratio is above the 50-day moving average, which is beginning to turn higher. A break of resistance would increase conviction that a relative turn is underway.

Take-Aways

The cyclical areas of the S&P 500 are in the process of testing important absolute and/or relative support levels. At the same time, Technology continues to improve, and Communication Services is on the cusp of a relative breakout. Real Estate remains a strong sector.

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.