Power Sector Review

April 8, 2024

The Big Picture

Markets finally took some back this week with bearish engulfing patterns across the board. All were led by Thursday’s intraday rout. We discuss the big picture each week in the Weekly Macro Review. The weekly message is potential caution, but bears need the much elusive follow through week to start something bigger. If rotation takes hold again, we could continue to grind higher.

The Universe chart was down on the week, but there wasn’t any damage to see. We are still in the RSI mushy trend on the daily and Friday’s gain fired fresh RSI and CFG Positive Reversals (hidden divergence for some) which could help thwart the sellers for now. This week we likely will get some short term direction, unless of course, sideways is that direction which is always a possibility. Bears haven’t been able to make much headway most of the year on this broader view due to the rotations going on under the surface.

The first thing I want to address (kind of kidding) is the Consumer Staples situation. I covered it last week and it underperformed! That stinks, but it’s also telling. I talked about how its defensive nature needed to show when the markets went down. Last week, they got their chance to outperform and failed miserably taking an 18 point hit to its RS Score. That’s how the markets work. We don’t get what we might want, but there is definitely still something to learn from what IS happening. This message helps us understand this isn’t likely to be due to economic issues. Institutions aren’t going defensive here, and really, why would they? Things are not showing signs of rolling over, they are just cooling off from a strong run in many spaces while others like commodities pick up the baton and lead. Technology was down for the week, but still gained 28 points of RS as Health Care and Consumer Discretionary performed the worst. Energy and Materials were the only gainers.

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 Snapshot 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.

This week was much more mixed than we have seen recently and ended Friday with a gain on the day, but still very mixed results below.

So Friday ended green, but the short term breadth was quite pink. Showed a tepid bounce after the big down day. That said, tepid is better than none at all. Now, this week should tell us who wants control the most.

Highs and Lows are more mixed than we have seen in a while. With the addition of the 253 day highs/lows (52wk) we have a wider view here, and basically it still leans to the buyers more broadly. The selling is building on itself some, but it’s still not enough to roll things over just yet. Thursday’s selling has some alerts up, but so far it’s looking like it could have been a quick liquidation break that helped reset some things, just very quickly. If the lows keep growing, we should probably heed the warning and reduce some risk however you choose to do that. Like I said in the Macro review, I am not getting overwhelming evidence a bigger correction is upon us, but it would be very normal if we were to see one at this juncture.

Pressure gauges went out quiet to end the week after some fireworks in both directions in the middle.

Subsector Relative Strength

It’s pretty clear by looking at the weekly outperformers and underperformers lists that the underperformers outnumbered the strong subsectors by almost 5 to 1. All four of the gainers were commodities. The losers were spread out, but interest rate sensitivity was the driver for many of those that underperformed.

Relative strength leaders remained the same this week with the exception of Biotechnology falling out for the first time since near the start of the move in November. OG & Consumable Fuels jumped up with the rest of the sector. I put an arrow over the RS section there to point out the terrific color/RS progression here. The ER Movers had Consumable Fuels, but also two Technology Subsectors popping on the gainer side. The losers side was very interest rate sensitive like we saw above.

Zooming In

Health Care

EW Health Care sector has been in a pullback for going on it’s seventh week. Late February it peaked after leading much of the rally with Biotechnology leading the way up. It was a strong run after a long period of underperformance by the entire sector. So far, the digestion of those gains has been very orderly while also wringing out almost all of the momentum seen in the fall. This was helped along by this week’s big loss as many finally gave up as the sector pierced the March lows. That thrust off the lows was strong and fast leaving a lot of momentum to work off of. It looks like on this sector we could be closer to done with that digestion about the same time the rest of the markets are looking like they may be starting their own. Or, will they? Health Care is a large sector, so if it decides to perk back up here through rotation, it could help maintain the broader markets grind higher for now, or at least provide some opportunities for us to take advantage of along the way.

The RS/RSI chart for Health Care is coming in for a RSI bull range test and fired a CFG divergence on Friday while RSI made a lower low. This indicator divergence can be a short term bullish signal. Follow through higher early week could move up to test the downtrend here. If we do see it here, the shallow 23.6% retracement would mean a lot of underlying strength still in there, but a further retracement doesn’t damage the bull case overall, just right here. There is a second chart if you hit the arrow in the middle on the right showing in the longer time frame that the upper line daily couldn’t stay above correspond with the highs from back in 2021, a move and hold over that may be difficult, but well worth the effort if it can succeed. Pull out one of those big base sayings, they are rooted in truth.

Relative Comparatives show the surges off the lows last fall and then ultimately stalled toward the end of February. Since then they have been coming back, but haven’t broken any levels of importance. If we can start breaking these downtrend lines before we break the floors, we will be back in business.

The breadth picture has seen the short and intermediate term readings working off the thrust since the beginning of the year. None are really oversold, just a long ways from the high readings in a very meandering fashion. It was one of worst performers for the week, but surprisingly not in the worst performer’s zone on Thursday or Friday. This isn’t what you would expect from one of the weaker sectors recently. We did see the NHNL give a couple of negative readings this week for the first time this year, but overall the longer term readings have been holding up. This is where they either crack and head down to the next level on the chart or find some buyers as other sectors take a break. The McClellan Oscillator is hinting it might have other plans. It wants to turn the Summation here and keep it above the flatline. Look both ways play for now.

After piercing the March low from the first wave down, the new lows started expanding more than we have seen on this move on the shorter measures, but the 63day lows aren’t expanding enough to get concerned yet. A couple of the subsectors even saw divergences on this last low. Divergences here would be a nice tell if they come soon.

Health Care ETFs

Health Care ETFs are also a large and diverse group of funds covering many themes as well as broad sector allocations. Right now, the theme that is leading is Cannabis being the only 4 names on the leaders list up for the day and week. These funds are up big over the last quarter after a long, long drought. Pun intended. What I think is most notable here is how Medical Equipment ETFs jumped up on the list this week with $STAA surging on news. This and Biotech have the most components while Pharmaceuticals and Health Services carry a ton of weight in market cap with far fewer names. This is something to think about as you look through the different subsectors, funds and themes in the space.

Below, we have the ETFs that are weighted three different ways in the broad sector as well as in the Biotechnology subsector. We probably could have added a similar comparison for Medical Equipment with the space coming on here, but my point is to show the large caps have lead here like most other sectors, but the mid and some smaller names are definitely participating in this move and might even be holding up a little better momentum wise than the larger constituents at this juncture.

Health Care Subsectors

As we noted above, Health Care is a big sector with a lot of names. The right shows the breakdown of the 497 currently in our universe. The space was hit hard this week with Biotechnology being the worst and then Health Services (another defensive not doing its job). Pharmaceuticals are still leading and do have the strongest chart below. Medical equipment has a much longer base it is in and trying to work its way out of. It is worth noting that all the RSI are in bull ranges that are testing a couple of subsectors but are bouncing where they need to. The RS on the top window of the RSRSI Charts show the different paths from each sector. Biotechnology is notable because of how strong it was off the lows. The current pullback still only brought the shortest RS time frame off the recent high level. The other two remained at the top. Healthcare Services has been the laggard and continues in that role, even on days it should be relatively strong as a defensive play.

Health Care Leaders

Below, the Health Care leaders for the week as well as the RS leader and RS movers. Like I mentioned, it is a huge sector, so I only captured a small fraction of what is there. On the Movers, it’s the first time in a while I have needed to split a sector into multiple images showing the heavy movement under the hood this week in the space. I already mentioned the Cannabis names are moving big, but there are many others worth a look on these lists. One final tip, when reviewing this list, do not relegate the RS Losers list to just looking for short ideas. In a big uptrend, if we are near a short term bottom, these could be just pulling back into support as they give up RS points. We have narrowed the field a lot. From here, you can do your chart work and make a plan for when we see money moving back into still one of the leading sectors in this rally leg.

This report is already long enough to choke a horse, and If I try to narrow down from 497 individual names to the 5 or ten best, I wouldn’t have gotten this out today. Go to the pages from the menu at the top of the site, search and sort the RS lists and then hit the link and look at the charts on Tradingview.com. The goal is get you to the right charts.

There was a lot of sector movement and a few things that we learned. Defensives are still not doing their job which means the selling is more profit taking and rotational than it is fear. Commodities are still leading and don’t seem to be slowing down as many breakouts are holding and expanding. Technology was a surprise relative performer this week while Consumer spaces were not. This tells us Interest rates are still the biggest concern until the FED actually cuts or we get an inflation print that is less than expected. This fear might not hit these markets that hard overall, but it will likely put a big damper on any progress until it is resolved or at least perceived so for the moment.

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!