Power Sector Review

January 31, 2022

Markets didn’t make it easy for anyone last week. We mentioned them needing to take a stand, and I guess they did by the end of the week.  However, the actual movement throughout the week was not an easy read.  It does look like we put in some short term lows early week, now we just need to see some upside follow through to help grease the skids.  The market washout level is something that can help in the near term when things get overdone, but its all about the progression of participation once the retrace commences that matters. Watching how and where money flows this week will be important if we do get an upside extension.

Chart Highlights

Short-term breadth in this form can give us quick and easy insight into what is outperforming during rallies. This is from last weeks Power Sector Review, “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.” We saw a bounce on Friday and takin a look at this can show where buyers went first. Technology, Real Estate, and Communication services led the way on Friday. It may not be obvious at first glance, but short-term breadth improved greatly for these sectors. There were no significant new lows in the sectors or sub-sectors, breadth thrust is only in a critical level for one tech sub-sector, and many stocks reclaimed their 20 day moving average. We’ll see if this has significance early this week. If we continue the rebound, we can tell if this has significance by looking at where buyers go first and hardest out of these lows.

Moving Average Breadth has come off the lows from last week, but still shows a good bit of red where sectors got washed out in the short term. Interesting to see Real Estate join the growth sectors on the recent drop giving a little insight into the level of fear behind the inflation narratives.

Energy, Utilities and Staples have been the winners lately. No debate there. Sorting by RS shows us what has been outperforming and it confirms what we all know to be true. I want to point out though, that two of the top three performing sectors on Friday were Tech and Communication Services. Tech is next to last and Communication Services is 4th to the end. We may be seeing switching roles in what has outperformed and what has underperformed. We’ll be able to tell by ranking these again throughout the week and monitoring movement between the Sectors. 

On the Subsector level, energy wins on the week.  However, sorting by Friday’s performance shows that the underperformers saw the most buyers during a rally attempt. Looking at the RS ratings shows a sea of red in the shorter-term measures and for most longer-term as well. Again, seeing this continue this week could be a start of a new trend of outperformance in sectors other than energy, staples and utilities.

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!