Power Sector Review

February 21, 2022

As the major indexes work their way back to retest the lows, we will keep a close eye in the Macro Review on how that turns out, but while it’s going on we will also be watching the sector and subsector worlds closely. Certainly comparing defensives versus growth and cyclical type investments is one thing to keep an eye on; but emerging relative strength or weakness provide the best opportunities to maneuver the landscape Whether or not the retest holds, this type of battle ground action can help separate strong and weak sectors and subsectors. If the retest does hold, the strongest and subsectors won’t come likely come anywhere near their previous lows and the weakest ones will overshoot. If it doesn’t hold, then defensives will keep their relative strength, but may not show much if any absolute strength.  Another leg down would likely take out most of the leaders just as collateral damage. I am not saying that is where we are, just that if we do lose these levels we could see some panic finally set in over the immediate term, which might actually help in the bottom process if it were to happen.  While all this plays out, we watch and study sectors and subsectors to keep a tab on where money is flowing too and from.

Chart Highlights

Slipping back into pink here too as the markets roll from the recent peak. Metals and Food & Staples Retailing the only green showing anywhere. The Power Universe as well as most sectors ended the week with over 20% making new 10day lows showing the selling pressure is broad.

On the sector level Energy and Materials are on top with a defensive posture overall still clearly, but leaning more to the Inflationary side still. While Materials were strong this week, Energy was actually the second worst behind Health Care.  Materials and Industriala led the week. Seeing Energy and Financials down on the week could hint at some relief on the inflation side if it gets follow through weakness this coming week. Health Care smacked again this week with biotechnology weighing big on the whole sector, but most of the subsectors were on the worst performers list below, so we can’t blame it all on Biotechnology.

The Three views below give us the RS gainers, top performers and bottom performers for the week. The RSI movers shows some strong weekly performances, but not a large amount of green in the RS table. This shows some of the weaker spaces while still catching some strength in Transportation and Industrial Metals. However, it’s hard to make a big move up in RS when you are already near the top. That is why we also want to look at the absolute performers for the week.  High RS can stay high a while. Many of the same names on the second list as the first, with a few variations.  The final list is the week’s worst performers.  Software sitting right on top, well bottom, while many of the other Info Tech, Communication Services, Consumer Discretionary and Health Care. Those are many of the heaviest weighted sectors so it will leave a mark, but let’s not let it slip by that two Energy Subsectors are on the worst performers list. This is a big change and is worth watching to see how it plays out.

The video will take you through our move down into the sectors that are moving and look at many of the setups based on our 4 pillars of relative strength. Also a quick introduction to the Custom RS scans that allow you to put in stocks, ETFs and mutual funds and rank them versus each other using our relative strength scoring.

As always, I hope this helps!