Power Sector Review

March 13, 2022

This week we are trying something new with our posts.  Over the weekend we will concentrate on blogs and articles to inform our readers and save video reviews for pre-market so we can go into the trading day or week with the most up to date insight on the market environment. This will put more charts in these articles with brief commentary of which we will expand on what is relevant in the videos.

Chart Highlights

There is more red and green on these quick view spreadsheets this week. The first being out short-term breadth view which is seeing the pink and red areas expand again, not yet to the extremes we saw the last couple of times we were down here. Surprisingly, more sectors are still in hanging out above their breadth extremes on the short-term readings leaving the really concentrated selling in the growth areas. However, when we drop down to the Moving Average Breadth QV we can see more intermediate and longer term extremes are still present. A good bit of red in all the pink, but also decent chunks of green still in the strong areas. Energy, Metals and more recently Utilities have joined this small group.

In the review of our equal weighted sectors Energy remains on top and isn’t giving reason yet to lose that spot. Utilities took over the second spot this week from Materials as Industrial metals cooled a bit this week. One that looked like it could break out of a pullback last week was Consumers Staples, and it failed miserably put in the worst performance of all for the week. Other relative strength moves this week were small jockeying for position, but when we look back over the longer RS movers, Real Estate, Industrials and Health Care or the ones strengthening.

the equal weighted sectors we build are powerful when looking for participation and less popular ideas inside themes, but we also realize they don’t always reflect what is going on in the investing side of the sector world due to so much being market cap weighted and limited in their holdings scope.  For this reason at the bottom of the Macro View page we have sector ETF proxy lists that look at market weighted, equal weighted and small cap ETFs to help differentiate where the leadership really is. Below I go one step further and put those 32 sector ETFs into our Custom RS Snapshots and rank them all together in one list.  The cool thing is you can do this yourself over stocks, ETFs and mutual funds to help compare relative strength across all your holdings or watchlists.

Below I have shown 2 different views from this custom list. The first is the top 10 RS ranked.  Energy are all up top, of course, with Utilities right behind.  However, it is also worth noting all the rest are of equal weight or small cap nature giving us another piece of evidence large caps are taking their turn now while small and mid-cap names seem to be holding up better at this stage. Its not showing up much in breadth yet, but may explain why short-term breadth is not showing more extremes.  Looking at the second version of the list you can see when we sort it by the RS movers we see a lot of Real Estate near the top as well as more small cap and equal weight presence.   We noted Real Estate last week as a sector that was not strengthening a ton, but had been very resilient during all of this mess. Seems that resilience is paying off. Below we will take a quick look at one sector ETF that is on both of the lists.

$EWRE is an interesting case as it falls into the resilient real estate space as well as has the benefit of being equal weight providing a bigger opportunity for the mid and smaller names to contribute to the returns.. The top RSI chart shows both the daily and weekly view of the ETF. On the left, the daily the first thing that jumps out is the failed breakdown at the last low. That also was the breakdown of the neckline of a potential smaller head and shoulders pattern. It is now testing the failure line of the pattern to see if it gets negated and we move back higher. Then we can see where the volume resistance may be.  Friday it got rejected at the 1st of the two that need to be surpassed for this to get continuation. Now this daily could just be building a larger head and shoulders top if we get downside continuation from Friday’s reversal candle.  This daily is stuck in the middle with mixed view, but leaning bearish due to Friday’s close. The weekly chart to the right of it has a different message so far. This has recently put a large RSI positive reversal off the MA Bands with CFG bottoming below zero. There is a potentially powerful weekly setup if we can get past the daily muck. The final chart at the bottom shows the relative comparative versus the $SPY and $IWM, both of which are looking strong.  Price has held above the 200sma after quickly remounting it on the failed breakdown, but might be heading to retest it after Friday’s candle. Hold or fold is where we start the week on this and many other areas in the markets.

Diving deeper down into the subsector world, let’s start with the ones that were green this week.  Usual suspects still dominating, but a few poping up with some some potential.  Industrials subsectors, Construction Materials and Industrial Goods showing up and sporting a nice looking color scheme on the RS part of the table.  Basically showing strength a quarter ago, a pullback that is now strengthening again over the last week and month. Digging deeper into these subsectors would be worth a minute. Health Care Pharmaceuticals and Biotechnology also put in positive weeks, but note the difference in the RS rankings here. Pharmaceuticals has been methodically moving up the list over the last quarter while Biotechnology has been riding the bottom. Which looks better to you depends on your time frame and style of trading, but in such a tough environment, I would probably focus more on the Pharmaceutical as they are historically more defensive and less volatile names.

The next two are snapshots of the RS Gainers and RS Losers for the week. The gainers include all the subsectors mentioned above, but with a few more to look into. Chemicals is always a stealth favorite, so seeing it on the list will have me reviewing it deeper for opportunities. Many of the names are middle of the pack (yellowish) potentially bringing in some change of character.

On the RS loser side, we see less names but those that appear have bigger RS moves overall. Medical Equipment Devices and Supplies looked good going into the week and came out one of the worst performers. This is what happens in bear trends, strength can be quickly fleeting. Hotel Restaurants and Leisure is also suggesting the re-opening plays are succumbing the fear of the consumer backsliding and ending that theme.

A good way to end this post is with each sector relative comparative chart we use in order of the RS Ranking. This simple run through covering the last six months or so tells a lot of the story without need for much commentary. Industrials hasn’t seemed to be a leader, but relatively it is picking up here. Financials is also near breaking down, but perking up relatively versus the SPY. These relationships are worth watching as we move forward.

This takes us into the new week with a lot of general market caution on the geopolitical front, the FED and OpEx on the agenda as well; It could make for an extra volatile week or usher in a change of character as many of the anticipated events are realized and behind us.  At this time, the backtest is on shaky ground, but hasn’t failed yet and the bearish rhetoric and headlines are well ahead of the participation we are seeing. This would suggest staying very light or in the areas that have been working like Utilities, Energy and Materials with tighter leashes as they extend. While at the same time, building a watchlist in some emerging sectors like Real Estate, Industrials and Health Care. As far as Consumer Discretionary, Technology and Communication Services, we need to see more evidence the selling is abating before concentrating much there; even if we miss the absolute bottom. Sure there are a few names showing absolute relative strength in those spaces; but as themes, they are not where we want to spend our time right now.

This covers an  overview of what we are seeing. We will add more color to it in the videos we post througout the week, so stay tuned!

This information is for educational purposes only and is not a recommendation to do anything, at all….  Please see the full disclosure in the footer

As always, I hope this helps!