Power Sector Review

February 5, 2024

Sector Highlights

The majors that we follow in the Triple Play charts were mixed this week with the large cap $SPY and $QQQ pulling out a strong candle (thanks to a strong Friday) while $IWM back-peddled some with the FED narrative. Large Caps have re-asserted their dominance since the beginning of the year. We talk about this in much more detail in the Macro Review if you want to get caught up. Here we look closer at sector relationships and what we see going on under the hood.

Health Care and Information Technology have been staples at the top of the list for the last few weeks. Financials were up here too, but took a hit this week in Regional Banks and Thrifts & Mortgage Finance. These two subsectors took a one-two punch with the FED message and another regional bank showing cracks in the armor. It was enough to pull Financials out of the top three. Industrials was happy to move into that #3 spot as it has been improving in recent weeks and moving its way up the ladder for a while now. The biggest RS move for the week was Consumer Discretionary jumping 28 points and probably worth a closer look. On the other side, Energy suffered again giving up a decent chunk of last week’s winning performance. This is still a precarious space, but one that is also entering strong seasonality right about now, so we will keep an eye on it closely in the next couple of weeks.

Remember, the reason I call these snapshots is because they are just one day’s datapoints and with many being short term readings. They can change quickly, so these spreadsheets can be very volatile from day to day and we are just looking at Friday’s data and how they closed out the week.

The Short Term Breadth Snapshot here shows a lot of pink in Real Estate as many continue to head for the exits. The interest rate rhetoric weighs heavy here and a push off in cuts is being sold. That FED message also did a number on the Regionals and Thrifts & Mortgages as they continue taking their lumps into the end of the week. Energy also showing that selling pressure. The real standout on the positive side here was clearly Industrials going into the weekend.

Moving Average Breadth Snapshot reninds us the longer term strength in Financials with that solid green column, so we will see if the weakness is quick and gets bought or if it spreads to the rest of the Financial sector. Industrials is a standout here again with green showing up. There is a lot of good movement in the space recently which we will touch on a little more below.

Clearly, you see why Industrials was such a standout when we look at the percentage of stocks making new highs. There are some other spots perking up, but this is where the flow was clustering on Friday. One other thing that I saw notable in all of this was seeing Banks and Diversified Credit Services showing healthy new 63 day highs in the face of the late week Financials selloff. Shows the issues are likely contained in the two mentioned spaces right now. I added the Stocks making new lows which I worked on this week. It jumps out and confirms weakness we have already discussed.

With the weakness in small caps, it is not a big surprise to not see any green on this one, but I have to say I am a little surprised about how much pink and red to end the week.  Hints to us that markets are narrowing here and might be ready for a little more substantial rest as we move into a more seasonally weak period into late March. Just something to take note of and use to tighten up trade plans for a little different environment.

This section, we will move back to the price and performance world and take a look down into where things are moving in sectors. Starting with daily and weekly performers, Industrials are hogging the top spots, but I am also noting the Consumer Discretionary subsectors that are showing up here for the first time in a little while. RS Scores still need some work, but watch for them to keep emerging if this rotation can stick. On the weekly gainers, we see more Utilities and Consumer Staples names also creeping in trying for a defensive rotation. I am not sure if it will take or not yet, but there are some charts in there looking ready to play some catch up if anyone decides to care. Overall though, I would expect better from Industrials or Consumer Discretionary out of this rotation with the intermediate market and economic backdrop than I do Consumer Staples or Utilities, so it’s hard to use them for much more than a market gauge or a quick trade here. Funny, it seems like an oxymoron to talk about a quick trade in Consumer Staples or Utilities…

Now, let’s move over the the RS Rankings and take a look at how things shake out. RS Leaders had a few new additions with Machinery from Industrials as well as Internet & Direct Marketing and Hotels, Restaurant & Leisure from Consumer Discretionary moving up into the top quartile shown here in the top list. The second list includes those that moved more than 20 RS points up or down this week. Semiconductors continue to lose ground here as they finally give some ground after a strong move. It may be just a rest, so I wouldn’t let it off the radar. Consumer Discretionary accounted for half the names moving in the right direction from an RS perspective this week. Another reason to look closer.

The last list is composed of the subsectors that have moved more than 20 RS point over the last month. After a volatile January and breadth weakness that come along with it, it’s probably good for us to know who is moving the most under the hood. We have already discussed Communication Services a few times and we see all of those subsectors on the list and Info Technology still has a good presence, but now with Software, IT Services & Hardware & Equipment picking up where Semiconductors have dropped off. On the downside, Financials, Utilities and Real Estate dominate the list as the rest of this report suggested. After the first leg higher in the 4th quarter, January served a lot of rotation to be aware of when looking for new entries. The old leaders aren’t the only ones setting up and moving in these markets.

Sector Highlights

This week I chose sectors to review by how they performed for the week, but with a focus on how they performed toward the end of the week as the broader markets struggled. I also am going deeper into sectors this week giving some insight into subsectors, ETF and stocks that can be reviewed in each one. Remember though, these represent select views that I chose, there is a lot more to discover if you want to dig yourself on the site pages.

Industrials

The Industrial sector has been on a grind for a while and quietly moving up the RS rankings list. This week it moved into the top three as it starts to wake up a bit more. It is a large sector and shows a lot of strength, but you need to be focused because it also has a lot of losers lurking. 

The RS in the top window shows the longer term readings have been pretty steady while the short term RS dropped in the Fall and has been slow to resurge until the last few weeks. All three RS time frames are now back up in the 80s as the broader markets begin to chop around. RSI is in a bull range and held the pullback early January. Just this week, it fired a very tight RSI Positive Reversal as it made a higher low in this current flag with RSI making a lower low. 

 

The Relative Comparative charts show a nice uptrend longer term versus both the $SPY and the EW Universe where it is also breaking out of a recent downtrend.

 

The Breadth Picture also looks pretty solid here with all the moving average breadth readings solid and the McClellan Summation Index gave a signal. It hasn’t been a big runner up to this point and not really seeing big spikes, just steady improvement or at a minimum holding up very well while most focus elsewhere.

 

New highs have remained solid over the last week or more with very little fade as the broader markets stumbled.

Industrials Subsectors

We already alluded to how this sector sets up Industrial Goods, Machinery and Construction Materials all out front and moving well this week outperforming the major indexes. Transportation and Aerospace & Defense have been the anchors, but both trying to join in with some of the bigger names under the surface in spaces like Rails and Trucking. The Relative Comparative charts for each subsector are also shown below.

Industrials Subsector Relative Charts

Industrials Leaders

There are plenty of ways to sort for leaders in the space. Using the ETF list on the site, we can start with the RS leaders in the ETF rankings list. Another way to go is the RS movers filter which only shows the ETFs on the list that moved up or down 20 or more RS points this month. I chose the longer period since I mentioned Industrials being a slower grinding move.

On the stock side, below are a list of the RS Gainers and Losers in the entire sector over the last week. If you want to drill down further, you can pick a subsector and go to it’s page and do these same filters on just the names in that list. From here, looking at the charts should pull out some opportunities for your watchlist.

Consumer Discretionary

Consumer Discretionary is the sector that gained the most RS points this week and up to the 4th spot. The charts still have some work to do, but might be in rotation after lagging for a bit. These charts suggest this is not a leader yet and we need to see these continue to improve.

The RS window in the top shows this sector has not been leading for a while now and lagged a good bit in the Fall and never really emerged as a leader in the first leg during 4th quarter. It just hung around in the middle of the pack most of the last 6 months. RSI is also holding the bull range, but not really showing much momentum.

 

The breadth picture is stuck in the middle as well, no real standouts.

 

Even on a relative comparative basis, the only thing I can point to is the failed breakdown here versus the EW Universe last week. It will have to do more than that for it to move into leadership position as it is barely above the November lows when looking versus the $SPY.

This sector really got hit quickly at the start of the year. Since then, it hasn’t out-performed, but we are seeing as sequence of smaller readings for the new lows, just not seeing the new highs in bulk yet.

Consumer Discretionary Subsectors

Down in the Subsectors, Household Durables has been the leader for a long clip now and remains at the top position, but looking at the Relative Comparative charts below it looks like that outperformance needs a break. There are 8 subsectors here, so plenty of other spaces to look at. All need to see more relative performance come on. Some are starting to perk a little versus the equal weight universe, but the $SPY isn’t buying it yet… While this sector is showing up on the short term “notice me” lists, it still has a good bit of heavy lifting to do.

Consumer Discretionary Subsector Relative Charts

Consumer Discretionary Leaders

Here we see the ETFs in the space that are showing the highest 3 month relative strength scores and below that are the RS Movers. Quite a few theme ETFs in the space showing here.

On the Stock front, I have included the RS movers list for you to dig deeper. Now, make sure you look at both lists for opportunities from both directions, just because it is on the gainers or losers list does not tell you what the chart is set up for next.

This week we took on a couple of the sectors with more subsectors involved and gave a glance of where strength and weakness is within those. I mentioned in the Macro Review that we could be coming into a choppier period and should be on the watch for rotation. This week’s sectors are seeing some of that rotation, even if it isn’t showing on the surface just yet. You can work from these lists I have provided or go to the pages from the menu up top to find the opportunities best for your trading style.

This information is for educational purposes only and is not a recommendation.  Please see the full disclosure in the footer.

As always, I hope this helps!