Key Points

  • Growth Sectors Cascade to the Downside, Time Is Needed to Heal These Wounds
  • Cyclicals Hold Up Better, Energy Is Best of the Bunch but Watch Industrials
  • Defensive Groups Do Their Job on a Relative Basis
  • Staples Remain Solid
  • New Relative Lows for Communication Service

Visiting the Sector Relatives

Information Technology

The 2,900 level that we have been highlighting gave way quickly last week, leading to a cascade to the downside before yesterday’s reversal. We now have lower lows and lower highs below the 50-day moving average, not a good look if you are bullish on Technology.

Relative to the S&P 500

The relative trend is breaking below support as it trades under the 50-day moving average. Time is needed for a base to build.

Consumer Discretionary

The Consumer Discretionary remained under a lot of pressure despite yesterday’s late rally. The index is below the declining 50-day moving average and key support levels. Above 1,390, traders can play for 1,490. Between those levels, there is no clear trend for investors.

Relative to the S&P 500

On a relative basis, Discretionary continues to fade from the declining 50-day moving average and trades below broken support.

Communication Services

The Communication Services has also cascaded to the downside, below the declining 50-day moving average, after losing support at 255. Below this level, the bears are in control.

Relative to the S&P 500

Relative to the S&P 500, the group remains in a downtrend below the low from early 2021. A lot of work needs to be done before this sector becomes compelling on a relative basis.

Materials

Materials have broken below a confluence of support at the breakout level, the rising trend line, and the 50-day moving average. However, the low end of the 2021 range has not been breached, making this one of the “cleanest dirty shirts” in the market.

Relative to the S&P 500

On a relative basis, Materials remain neutral, above the 50-day moving average but below price-based resistance. However, there is a slight upside bias.

Financials

Financials are a sloppy mess below the declining 50-day moving average but holding within the 2021 range. Retaking the 650 level would set up a compelling opportunity; below that level, there is a grudge match between the bulls and bears. 

Relative to the S&P 500

The relative trend is also in a sloppy consolidation. Breaching the October highs would get our attention.

Industrials

The Industrial sector tagged the bottom of the 2021 range before staging a rebound yesterday. The index is below the declining 50-day moving average and remains in the consolidation zone, making it one of the more compelling trends in the market.

Relative to the S&P 500

The relative trend improved again this week, holding above the 50-day moving average and closing above resistance.

Energy

The Energy sector was not immune to the selling pressure that has hit stocks over the past week. However, the group remains above the breakout level and the rising 50-day moving average. This is arguably the best trend of all the sectors currently.

Relative to the S&P 500

The relative trend is also strong, above resistance and the 50-day moving average.

Consumer Staples

The bulls remain in control in the Consumer Staples sector despite giving up short-term support at the 795 level.  The 50-day moving average held its ground during yesterday’s selling pressure. Above 760, the trend is to the upside.

Relative to the S&P 500

The relative trend is also bullish, testing 2021 high while trading above the rising 50-day moving average.

Utilities

Utilities are back in the consolidation zone after a failed breakout. The group closed below the 50-day moving average yesterday, and the trend is neutral for now—above 355 is more compelling for the bulls.

Relative to the S&P 500

The relative trend is fading from the August peak but remains above the 50-day moving average. A breakout would put the bulls solidly in control.

Health Care

Health Care remains in the neutral camp for now. Traders can use yesterday’s low as a level against which to manage risk while playing for a rally back to the declining 50-day moving average. Below 1,450, the bears take control of the match.

Relative to the S&P 500

On a relative basis, Health Care remains sloppy, but we will give a slight edge to the bulls if it is above the 50-day moving average.

Real Estate

Real Estate lost support at the 305 level to return to the consolidation zone that began in September. Above 275 but below the moving average, the trend is neutral. Below that mark, the bears are in control.

Relative to the S&P 500

On a relative basis, the group has regained the 50-day moving average and is rounding to the upside.

Take-Aways:

There is no way to dress this up: the trends in the market are ugly. Uptrends are hard to find (only Energy and Staples), neutral trends on an absolute basis led to outperformance on a relative basis, and weak trends have cascaded to the downside. In this environment, investors who must be allocated to U.S. equities will best be served by focusing on relative strength to at least be in the groups that are “least bad.”

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.