Power Sector Review
March 20, 2022
A big difference in weekly returns for the sectors build. The rankings didn’t change all that much, but he leadership for the week certainly did. We covered some of this in the Macro Review yesterday. Here we want to look deeper try and spot any significant changes in any of other relative strength pillars we follow. Price is a big weight, but on a relative basis, participation and performance comparatives can also be great hints to future leaders if we are paying attention and know what to look for.
What a difference a week makes. We went from a lot of pink and red to a solid start for the green team. 10day highs is always the first, but these thrusts in recent days are notable across the board with the exception of Energy and a couple of Utilities which were strong up until the broader market reversal. The strongest thrusts were the Subsectors inside Consumer Discretionary and Information Technology, two of the most beat up sectors in recent weeks. The Moving Average Breadth view also showing a good bit of improvement overall. Consumer Discretionary, while showing a lot of short-term strength this week, still leaving a lot of its components under their respective 2oo day moving averages. This needs to be watched for continued progress or rejections as many reach the underside tests. That is still quite a distance from here in many names though.
Now as we explore the RS on the equal weight subsector level we can see there has not been that much change in leadership even though many on the RS leaders list were no where near the performance leaders for the week. Except for Transportation and Aerospace and Defense, which barely missed the top weekly performers list. The weekly performers list is starkly different with mostly the worst RS performing the best. The only green subsector on this list was Diversified Consumer Services. The beaten down areas I think still have more retrace to move depending on which ones we look at. Many names would feel like chasing if you jumped in right after this week, but if markets do improve, there are likely to be many rapid fire, fast moves here for those who are watching closely; so pick a few names you like the most and make a plan. Or, if you are looking longer term, you can start picking your spots. It may not be today, but no matter your timeframe, we should see some nice setups materialize as we go, so you can afford to be patient and choosy at this juncture. Information Technology, Consumer Discretionary and Communication Services are all good candidates to move back up the relative strength scales after such big stretches down recently. None of this says much yet about the sustainability of these moves, that will come in the form of market information that paints it self as this move back higher plays out. If it is the end of the correction we should she continued progression; and if it turns out to be another bear market bounce, it should look very different under the hood. While these sectors are exciting, In the next section, this week I profiled a three others that look to be worth digging further into as well. Energy as a leader, Industrials moving up in RS and Healthcare moving off the bottom.
Energy remains the top relative strength of our equal weight sectors even with the recent weakness that extended into the first half of the week until the sector found support where our charts might expect it to. On the RS/RSI chart. we can see it is still in a strong RSI bull range which put in an RSI Positive Reversal with the CFG bouncing off oversold just as it bounced off the MA bands and the previous high. Breadth came in on the pullback, but never reached any extremes suggesting more rest than reversal. The bottom two charts show the sector could be losing a little steam here if this bounce doesn’t prove itself. The pullback was sharp, so that might help explain why we are not seeing more new 10 and 21 day highs yet, but if those don’t progress here quickly it could be a warning of waning participation for now. However, it should also be noted that the new 21 and 63 day lows did not react much at all on the recent pullback. Bottom left chart shows the relative comparatives which have been on a tear until this pullback and are moving with the bounce so far. It seems like maybe less it has a little less vigor. For longer term traders this may not be a big deal as I feel the sector is still very under owned overall, but over the short term it could still lose some relative and even potentially absolute strength if it wants to pullback to back test the major breakout level which could provide stiffer support if the longer term thesis is correct. The more correct the under owned thesis is, the less likely we will correct back that far for now.
Industrials sector is in a little different position as it based over the last month showing increased RS versus the other sectors as they showed more weakness. Friday it moved out of this basing action and forged a new RSI bull range after holding the 40 level on the last few tests. Breadth is very strong short trem and trying to work its way up the ladder. MA Breadth shows the difference, %>20sma is up to 82% while %>50sma is at 64% and %>200sma is still below 50%, so it needs more progress. These have already been improving during the recent mess, so it wouldn’t be a stretch to see them continue to progress nicely if the markets moves for a bit here. We have also seen the relative comparatives run higher over the last month as well. This could just be defensive behavior, but right now it sticks out.
Healthcare is more in the lower end category as it had been in a strong downtrend from late last fall led down by biotech which weighs on the sector. Biotechnology has such a high percentage of sector components even if not the majority of the sectors market cap, so it weighs a little extra on the equal weight indexes we build. Even with that, we have been noting the breadth and other divergences in the space and the Subsectors like Health Services and Medical Equipment that were beginning to show some strength. Going into next week our index is on the very of breaking both the down trend line (not drawn) , but also the recent range highs. If that were to happen it would likely give enough of a boost to shift the RSI back into a bull range. looking inside there are some strong well known names breaking out or showing solid setups worth digging into. Even Biotechnology looks to be ready to play along for a bit adding a hot burning fuel source if so.
SPDR Sector ETF Relative Comparative Charts
This week I decided to save some space and give a quick run through of the Major cap weighted sector ETFs multiple time frame relative comparative charts to show how each is shaping up versus the $SPY. All 11 sectors are in the slideshow and each can be clicked on to open a bigger version in a Lightbox for better review.
Last week turned into a very strong week, especially for the weakest RS names. It could be just a flash in the pan, but the thrust we saw on many levels was enough to be on the lookout for a more lasting move up. It won’t be a straight line, hopefully, so pick your spots still. As noted above in the Subesectors, there were huge movest in the worst ranked this week and those moves can certainly continue if markets do see some FOMO into quarter end. Those may even be the fastest moves, but for those less nimble the commodity leaders or even the Industrial and Health Care areas might provide a solid return with less volatility and risk. I am not against the beat up spaces here, but I see those more as short to intermediate trades with potential for longevity than I do longer term position trades. They can get there, but the structure in those spaces will have to set up better and show more participation and relative strength before they can be moved over into that position trading column. It would be great to see some consolidation this week so we can see where the next set buyers will decide to take a stand.
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!