Power Sector Review
January 17, 2022
For the week the broader markets showed a lot of volatility during the week but ended with indecision candles in many places. This week I cover the top 3 relative sectors based on my 3 month ranking as well as Communication Services and a quick glance at Information Technology and Software which continued to underperform overall, but many names are pretty stretched near term and are putting some short term stakes in the ground with the $QQQ out performance this week.
Chart Highlights
The equal weight sectors remain very defensive and concur with the sector ETF setups other than Materials and Consumer Staples which are situated a bit different in our rankings. This remains defensive and inflationary as we move into next week. However, noting the RS movement in the Communication Services is still worth a look as we have mentioned this the last few weeks.
The mix of pink and green show how bifurcated we currently are. Once we see if the markets want to concentrate on strength or mean reversion in the coming week, this tells us where we might want to focus our efforts.
Looking at the Moving Average Breadth quick view we can see Internet and Direct Marketing are poking out on the weakness side and showing levels that usually don’t last too long. 7% of holdings over the 200 day moving average and 5% over the 20day movingn average is stretched by any measure. I also noticed that Communication services has no highlights this week after lots of pink in red in the previous weeks and months. This is how a change in character starts.
In the subsector level the week was similar to last as Energy extended its strong gains with Financials and Materials up with it. Below is sorted by the weekly performance. Although very defensive, I would not that Semiconductors was up there and ended the week with an RS of 57 after being at 100 just a month ago. This is often a good pullback in an uptrend setup, but ultimately the chart will make that decision. Two Communication Services subsectors are on the weekly gainers list as well. This is a different view of relative strength that can give clues to changes others might not notice.
While I touched on software in the end of the video, I didn’t give much of a reason I am watching the space. The two charts below show the divergences that are showing up near a potential support level on the chart after a large relative drop. The RSI chart is sporting a longer divergence followed by a very short 3 period one. These signals can be very powerful if they play out. Since they come at riskier spots, they don’t always, but worth noting. The Breadth chart is also showing similar divergences in the short and mid term measures we follow. Longer term are still weak, but coupling this with many notable software names outperforming the $SPY and $QQQ this week, we think it is worth paying attention to as it could have larger market wide implications if this space does start to participate again.
ETFs on watch: OIH PSCE COP RYE XBI SMH AMLP PSCT REMX ITA PBJ RYF XME IGV SOCL IDRV IHF LEGR MOO FSTA KBWP CARZ IGF PBS RTM REZ PEJ XSW FMAT IHI RGI IYG IYT ITB IAI
The ETFs above are not an exhaustive list, but give a good wide view on where you may want to concentrate once we figure out where the flows are heading this week. I apologize for those extra emails you may be getting while I am getting the MailChimp system down. Hopefully those will stop here real soon. If you are not part of our email list to get these and other posts straight to your inbox, you can sign up in the footer of the site.
As always, I hope this helps!
