Power Sector Review

January 23, 2022

As we mentioned in the post last week, we were either at a good spot for support to hold or fold, and it folded hard on OpEx week.  All the sectors and subsectors saw heavy correlation to the downside.  

Chart Highlights

This is what we see near washout levels, It tells us nothing about the bounce or where the money will flow, just that we are close to some type of inflection, even if very short term.  We can get great information once some buyers show up just by paying attention to where they go first and what they go for the hardest out of the lows.

Once some buyers show up it won’t take a day or to for us to figure out an initial responce to where the flow is targeting.  If people think the issues are longer term, we are more likely to see buyers in current RS leaders like Energy, Consumer Staples and Utilities, the more defensive areas as they are sold down to higher support levels.  If institutions feel the markets could see a better future once the correction is done, then the Technology, Consumer Discretionary and Communication Services will see higher flow.  The other option is a continued commodity leadership which Energy would still be there, but materials would also be receiving a good bit of the new flow.

From the Subsector rankings view sorted by sector and then RS ranking, Information Technology subsectors can tell a story.  IT Services and Software are both in the yellow and moving up a bit this week after coming off strong greens a month ago. Semiconductors were the strongest a month ago, trying to breakout  and when that failed they came down hard into the orange as they try to find some footing.  Then there is Hardware that pretty much lags other technology subsectors in both good times and bad.  Doesn’t meant there aren’t some gems in the Hardware and Equipment subsector, but unless you are lucky enough to take the AAPL approach, margins tend to be pretty tight in a space that remains very competitive.

For now, we are sitting in a waiting pattern to see where flows might come in before committing to new ideas.  I am even holding off on doing the Stock setups video until we see such action.  Anything I would put out now would have to decide which scenario above I think is most potential and then look for ideas there.  I would prefer to let the flows start first and then hone in on it quickly.

On the sector level, we are still very defensive, but losing 7-10% in a week can be considered capitulatory. 50 of 51 subsectors negative on the week is just not something we see often. Below are the spaces that got hit the least this week and fit well with the tone.  Now we wait and see when institutional buyers decide it is enough.

We would start the week off in a wait and see mode, but be ready for a fast inflection at some point sooner than later.

As always, I hope this helps!