Power Sector Review

April 22, 2024

The Big Picture

Markets saw another big down day on Monday and then a lot of back and forth, mostly down, until Friday where the Power Universe eked out a gain to end a pretty tough week overall. The week began with more indiscriminate selling, but soon turned to more specific targets. Unfortunately, those targets were some of the heavy weight sectors leading down. We also saw defensive spaces make bigger relative moves this week after finally showing a little defensiveness in the previous week. The RSI did shift into a bear range and CFG is oversold, so bounces are suspect until buyers prove themselves. You can check out the Weekly Macro Review for a more detailed look of the big picture through the lens of technical analysis and relative strength.

Unlike last week, we did see some winners even with the Universe itself in the red. Health Care, led down by Biotechnology, and Technology, led down by Semiconductors, were the biggest losers by a distance. On the upside, things were closer, but Utilities and Consumer Staples were leaders this week. Second week in a row they have been moving higher relatively. The commodity trade even took a break this week as most recent leaders took some hits. Financials might be the exception there. It has been hanging around the leaders for the last two changes of the guard. We went from Technology, Communication Services and Health Care to Energy, Materials and Industrials while Financials lurked in the 4 and 5 position during most of that time. This week it is 4th. Banks are improving and you can see below that Regionals also performed well for the week in a tough tape. Something to keep an eye on after Regionals underperformance for a while now. 

Snapshot Review

Remember, the reason I call these “snapshots” is because they are just one day’s data points and with many being short term readings. They can change quickly, so these spreadsheets can be very volatile from day to day and we are just looking at Friday’s data to see how they closed out the week. The Weekend Power Snapshots covers the entire week in a unique way. The snapshot views are now a daily post with a new weekend view giving a review of all the snapshots from that week, so check them out as well.

The indexes showed big red candles on the week, but the breadth action really bottomed Tuesday and climbed as price drifted into Friday. It ended a lot better than it started, but still no bounce to speak of this week. Short term breadth looks much better here even with all the red. The improvement in breadth as the week went on was sector specific and many of the largest sectors did not participate like Technology, Health Care and Consumer Discretionary. Utilities continued to see the most improvement with Consumer Staples perking up as well. The fear trade kicked in by mid week and lasted into Friday’s close. How it fares this week if we bounce will be very telling.

Moving Average reading also bottomed early week and began to shake off some of the weakness. Technology didn’t in any category as it finally took its hits this week. This is often how corrections end, with the strongest charts that look like they are above the fray getting taken to the woodshed. Semiconductors are a perfect example of that.

New lows are still well ahead of new highs since there is no color on the new highs sheet, but the new lows looks leaps and bounds better than it was on Monday. Again, selling was very targeted as we got to the end of the week. OpEx played a sizeable role there with many big Tech names sitting with tons of premium left as the week began. This probably exacerbated the move as many got caught of guard when it sold off fast on Monday.

Last week we discussed the 90% down day and the expectations of a bounce in a few trading days. Then Monday of this week we got an 80% back to back, sending a second signal, but no bounce within 1-3 days. This is not an exact science, there are too many variables at play, but it doesn’t mean stretched markets don’t react. I think OpEx could have altered the path for a couple of days once it’s momentum got going. This week should tell if that is correct, or if the selling pressure is heavy enough to keep us on the mat. Friday’s Pressure Gauges suggested we are moving more into the rotation stage from the liquidation stage. The defensive spaces got most of the buying attention at this juncture, if they keep that attention, it would be more worrisome. If the buying returns and spreads out this week, it wouldn’t mean the correction is over, but would help build setups for when the larger trend does resume. Straight down and straight up never really helps when trying to gauge investors and positions correctly for the next move. Those patterns and that back and forth gives us the information we need to build a plan for when we decide to commit.

Subsector Relative Strength

This week we got both winners and losers in the subsector world, which is more normal. It is rare that there are no weekly winners at all, usually there is a hiding place, even if only for that week. Last week they got them all which was why I speculate we are closer to the end of this phase of the correction (or all of it) than we are to the beginning. The worst subsectors were Semiconductors, Biotechnology and Software, the poster children of growth while the opposite persona led with Gas, Regional Banks and Multi-line Utilities. Staples weren’t far behind, so the weekly leaders were mostly defensives which makes sense. Regional Banks stood out too as it really has been the weak link in the Financials sector. If it rebounds here, it could put Financials up as a leader for the first time in a while.

Weekly gainers were mostly defensive spaces, but not all. It was good to see Insurance pop on there after the recent weakness in the space due to interest rate fears. Precious Metals was flat on the week after a big run recently. As far as the RS leaders, the Utilities pieces are the new additions there along with Insurance. The final list is the RS movers list showing a healthy list of RS gainers while the RS losers list is concentrated, but ugly. A look at the RS section on the grid shows these were the leaders up the last couple of weeks. 

Wrap Up

After the opening gap on Monday was sold hard and closed with a big red candle, the buyers were shell-shocked and couldn’t regain much footing until late week. Technology took a large portion of the selling along with Biotechnology within Health Care but these certainly weren’t the only spaces they hit. There is no reason to rush into anything as the week starts unless it is a short term trade. I expect there will be a lot of back and forth before we see a stronger bounce ignite. As we mentioned in the Macro Review, we believe we can go lower in this correction overall, but should see a bounce soon before trying for our lower target. We don’t have to go there, but that is one scenario that drags this thing out into May when election year seasonality starts firing back up. This correction is stretching some breadth readings and pushing previous leaders like Health Care to the bottom of the RS rankings. We highlighted potential in Health Care a few weeks ago if the markets played along nicely and we can see that didn’t happen for the markets or Health Care in general. This week still feels heavy coming in, but things were churning under the surface to end last week and will likely materialize sometime this week and give us some information we need to guide as we go forward.

This information is for educational purposes only and is not a recommendation.  Please see the full disclosure in the footer.

As always, I hope this helps!