Power Sector Review

April 25, 2022

Chart Highlights

With the markets on the rocks right now, it is worth mentioning that relative strength doesn’t alway equate to absolute strength. Chart and risk management skills are still they key in the end. We just point you to the areas that are showing something different from the crowd. We are starting to see some panicky stretches after Friday’s ugly close to the week. Not one sector survived with a gain on the week. For the month only the highlighted ones are hanging onto gains there. For the most part, those are the sectos that have been the strongest, but are seeing some of the most aggressive selling in the last few days. Consumer Staples is pulling back from the recent move which we will take a closer look at below.  Real Estate remains the “steady Eddie” of the sectors which we also look a little closer at the charts. The full sectors pages have all the charts as well as subsector, ETF and stock relative strength lists to sort through.

The short-term breadth view turned red in a hurry this week with the nasty price reversal. Internet & Direct Marketing is most extreme so far as it has been weak for a while. On the other side, Precious Metals is next after being a recent leader. We are in extremes on many sector and subsector readings, but most still have room to go lower if this is a real downside initiation move and not merely a retest. This level of oversold is definitely enough to mark a bottom in a pullback, and could see that this week. If the larger bear trend has bigger plans from here any such bounce should get sold into quickly and shouldn’t gain any traction for more than a minute. Last weeks selling was strong enough to push things over the edge if the intensity keeps up.

Moving Average Breadth is quickly turning pink as well across most sectors and timeframes. There are a few green standouts that continue to show overall strength, but we need to be careful and make sure they don’t become a source of funds on any panicky move down from here. If we can find a shorter term bottom here we should be focusing on the strongest and the weakest at the same in the early showing.

The equal weight subsector leaders line up as they have for a while now. Staples is the newest addition up in the top rankings.  For the week though many of these were negative and the commodity leaders were sold hard for the first time in a while.  It wasn’t enough to push them off the top, but notable as we watch to see if new leaders come take their place or not.  

In the second table is all the subsectors that outperformed the $SPY for the week in order of weekly performance. This gives us a good idea of potential rotation areas to pay attention to.  Consumer Discretionary jumps out here with quite a few on the list. Financials also have many subsectors outperforming on the week. These comparisons themselves are no reason to buy, but it tells us where we might want to dig deeper when we are ready to wade back in. Industrials and Real Estate clustering on here as well.

Sector Reviews

Real Estate

Real Estate has been one of the more steady sectors through most of the market turmoil, not seeing extreme moves in either direction.  It is a hiding place in volatile time and seems to be getting even more attention this time around with the worries about bonds. the RSI chart is one of the few we find in a RSI bull range at this point and holding up well. The sector did sell off with everything else the last two days, but looks normal here.  Breadth reamins stronger than the Power Universe on a longer term and short term basis. If the broad markets want to take everything down, this will go with them, but there is no rush to the exits so far.  The Relative Comparative shows it already making new highs versus the universe, but still right under the break on the $SPY which is more important.  Finally it is worth noting the benign spike of new lows on Friday showing much lower reading that most other groups.

Consumer Staples

Consumer Staples has been putting in the work over the last few weeks making a relative and absolute move up until the last few days. On the daily RSI view, we can see it is in a RSI bull range and above the MA bands and 9sma for now. The strong RSI in recent weeks has stood out and is rare right now.  The breadth view shows solid strength across most all measures.  The Summation might cool off some here but the Short-term breadth measures are remaining strong compares to everything else going into this week. The Relative Comparative chart shows recent breakouts in this environment and the PMNHL has strong high clustering and a small spike only on the 10day lows so far. In the most recent weeks this has been showing better participation than the commodity and other defensive leaders and it is nearing a breakout on our equal weighted index.

Subsector Highlight

Internet & Direct Marketing

We have discussed in recent weeks about Consumer Discretionary being one of the weakest relative sectors overall for a while now and might be do for some relief when the markets do find buyers. Many of the names are very oversold which can produce great bounces even if they don’t follow through longer term giving good opportunities to the nimble trader. The markets look rough and we have no idea when they might get traction, but for the fastest moves, we need to already be paying attention early when they do.  Consumer Discretionary is a good candidate and Internet & Direct Marketing is one of the most beat of spaces inside.  You can see the RSI chart is in a strong downtrend, recently rejected at the MA bands in a RSI bear range. There have been many bull divergences along the way, but let’s not kid ourselves, this is ugly, so any attempts need to be on a very tight leash. Breadth is completely washed out and has been there for a while.  We have seen a few short-term breadth moves, but nothing that could turn into a pulse for the longer measures. Relative Comparatives are still trash. Even the new lows clustering in teh PMNHL are high. I will note here though the recent drop is not seeing as many of those lows in teh 63 day time period. 

This type of washout is what you look for, the problem is the markets themselves need to find a floor to get any meaningful action out of it, and even then it is a high risk of failure.  That said, many of the names in this subsector are green today as of my completing this around lunchtime, so it may be worth checking out its page and RS rankings list at the bottom.

Markets are pressing on the lows going into this week after the ugly reversal mid-week.  At the same time things are starting to get oversold and washed out in the short-term.  The pressure could push us right through the lows or keep us in this range a while longer while deciding.  I don’t know which will happen, but I do know many are leaning down pretty heavily after the action we just saw. We are ripe for another pop that can be capitalized on if you are used to the velocity. Nothing is fixed yet, so the path of least resistance is to test the lows here soon, but a pop before we do would catch many off guard, which is par for the course. We don’t have much conviction, but do currently see the markets as oversold enough expect an attempt here soon.

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!