Power Sector Review
April 18, 2022
What has been working continues to. As boring as that may sound, it works. Utilities backed off a little this week after a strong run over the last month, but not enough to pull the RSI down much. As a defensive, Consumer Staples continues to make ground on both an absolute and relative basis. Growth sectors are heading back down with Healthcare (biotechnology driven) and Information Technology suffering the worst losses. on RS as well as price and Consumer Discretionary back on the bottom of the pile.
Healthcare and Information Technology showing the worst short-term breadth also, with a little Consumer Discretionary sprinkled in with Household Durables and Internet & Direct Marketing. None really pushing into levels of unusual extremes yet on these short-term measures. Energy and Metals still own the show short term too.
The Moving average breadth shows Energy and Metals again, but it also has a solid showing from Utilities even with the pullback this week. Staples is also slowing climbing to the top in recent weeks and will likely be there soon.
On the Subsector level, if we look a the top performers for the week, the first half of the list are all strong RS names and the second half are lower rankings pulling up. Materials subsectors outside of metals are starting to catch up a little. The interesting showing to me are the Consumer Discretionary subsectors, mainly because the sector itself has been on the bottom for so long now. While that is not a reason in itself to enter a space, it is reason enough for me to dig deeper and see what types of setups I am finding. If you do go to the individual subsector pages and start exploring, remember, the lower the overall RS score of the group, the more you focus on the top RS names. The higher the RS of the group, the more you focus on RS movers within the group. All subsector pages can be accessed through the menu bar.
Energy remains the top dog and our equal weight index broke out again last week and looks to be continuing higher. The is still an undrowned space from a longer term perspective, so it will be volatile, but moves are likely to exceed expectations during the acceptance. RSI is not ovverbought and turned up above 60 while forming another RSI positive reversal. Breadth is strong and not really letting up here or showing any prominent divergences. The realtive comparative charts are breaking out with price again and the PMNHL is solidly on the accumulation side. The last dip saw a few new lows from the 10day, but nothing on the longer time periods.
Materials is another clear leader on both absolute and RS basis getting ready to break out again from a nice setup. The sector showed a flag that has been shaken out to the downside, formed a RSI positive reversal and is now back challenging the upper rail of the flag. A breakout here can see some nice continuation. Both ETFs and individual names are showing some nice looking setups. Breadth is strong but not balistic like some energy spaces. The metals have been strong for a while, but they are still moving. Basic Materials and Chemicals, as mentioned above, look set up to potentially play come catchup as the sector as a whole draws more attention. Relative comparatives are also breaking out with price. the PMNHL chart shows the shakeout we saw to start the month was immediately bought up.
On the subsector level it was Retail that jumped out this week. It didn’t hurt it was the top RS mover for the week, it also turned in a solid performance with a weak backdrop in a weak sector. This made me look closer at the equal weighted sector charts where I quickly noticed they have been moving sideways for about a month and more importantly bucking the weakness over the last two weeks. The RSI is still in a bear range, but it didn’t even push down to the 40 level on that last low. Breadth is not strong, but has been putting some stakes in the ground during the recent weakness in the shorter term measures, now we just need to see it progress up the ladder. The Relative Comparative charts are also making headway. Note the SPY comparative is marked with a failed breakdown which is just as relevant as breakouts in my opinion depending on the context.
The pullback off the markets run off the lows is at a spot where buyers take a stand or the overriding downtrend re-exerts itself and the reversal attempt is dead for now. We should get this resolution this week now that OpEx is past. Sectors that have been working continue to be the ones to focus on and look for setups. There is always places to fish even in a storm. However those opportunities are likely to be overshadowed and missed with the with the largest sectors being the ones getting hit the hardest and dragging the major indexes with them. This can happen at the same time the under owned sectors we discussed continue to claw higher. It is true that 80% of market participants go with the market direction, but that leaves the other 20% for us to find and right now they are hanging out in Energy and Metals plus a few defensives elsewhere.
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As always, I hope this helps!