Power Sector Review

March 25, 2024

The Big Picture

Markets moved up this week across all three with strong gains thwarting any follow through from last week’s potential bearish candle setups. Weekly’s are nearing overbought, but no sign of a turn just yet and daily’s are still in strong RSI bull trends that all just bounced above the 50 level for RSI. End of quarter is this week, so we might see some drifting higher as portfolio managers try to dress things up for quarterly reporting. As I mentioned in the Macro Review, there are many portfolio managers that were waiting for a pullback early to mid quarter that never came and now some are offsides into the quarter close. Let’s see if they chase leaders this week or not.

The movement in the Power Universe this week was telling. Health Care continues to lose its relative strength and is showing some cracks with lackluster performance this week, even after Powell quailed fears. Industrials took the message and ran with it that the economy is strong and led for the week. Materials and Energy held their spots with respectable gains. Consumer Services continues to consolidate in price this week, basically flat. More risk on atmosphere post FED with Tech and Consumer Discretionary coming back to life. The arrows point to Consumer Discretionary and Consumer Staples showing the bias toward the former this week after a couple of digestion weeks for Discretionary.

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 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.

Short term breadth was mixed across the markets, pushing more on each end. Stronger sectors like Materials, Energy and Industrials continue to push while Health Care and Communication Services aren’t seeing any signs of buyers returning yet.

Moving Average Breadth is getting concentrated in those three strongest sectors, which makes sense, but Financials are still sitting with a lot of strength in all but Regional Banks and Thrifts & Mortgage Finance.

Highs and lows were mixed as the Short Term breadth pointed out. Still seeing some heavier selling in spots, but broader buying seems to trump it most days right now.

Pressure Gauges were quiet to close the week after a strong Wednesday and Thursday. You can check out the whole week’s action and scroll through each spreadsheet in the Weekend Power Snapshots to get a good feel for the flow.

Subsector Relative Strength

For this week’s outperformers, they had to beat the $SPY which was well ahead of the $IWM so the Universe was weighed down a bit. These subsectors still came out ahead. It was a good mix, but the Industrials and Consumer Discretionary stood out to me. Tech, Financials and Materials were scattered through too.

The Relative Strength Leaders were all positive on the week, but the spread was pretty large causing some RS jockeying, but no big shifts.  For that reason, I decided to take a little longer view and add the Monthly RS Movers which shows larger rotation prior to this week.

Zooming In

Consumer Discretionary Sector

Consumer Discretionary is stuck in the middle at the moment, but put in a solid week, so I thought we would take a look. There have been recent discussions about relative weakness in the sector and then I come look at my charts and realize they don’t mean the sector, they just mean the capitalization weighted ETFs they happen to follow. While seeing those is valuable, we prefer to start with the equal weight and then move through all the angles so we don’t misunderstand what is going on under the hood. These days in some ETFs, one or two stocks can be 30-40% of the ETF weighting and that just doesn’t give us a good picture of the whole space.

The RS scores on the sector have remained in the upper half since the fall rally with the exception of the 3mo reading that dropped off in early March and now is climbing back. The RSI bull range never showed much worry. The one test of the RSI bull range was complemented by a divergence in the CFG adding to some confidence it would hold. Since then, it has been a mushy RSI trend like the $SPY. I would like to see RSI break above the February high marked with the line. That would give more confidence of an expansion of the bull range and likely put it on Nitrous.

 

Relative Comparatives fell off right at the beginning of the year and have been bouncing around since then. A pick up would be nice to see across the comparatives if we can get price expansion away from this breakout level.

 

Breadth started recovering in early February and barely waivered in March. It has moved sideways with price, but as soon as price perked up, it was back in gear on the longer term measures. This consolidation seems very healthy and now looking for expansion in the short term measures. 

 

When the markets were getting the strongest buying on Wednesday and Thursday, our snapshots showed this sector getting strong readings after being absent for a couple of weeks. These spikes came at an important time, but we need to see price expansion for them to get above the marked lines and start another leg higher. The longer 63-day highs reading is closest to its old peak showing some longer bases are breaking out.

Consumer Discretionary Subsectors

The Subsectors here have a pretty big spread in returns and make-up giving a lot of room for bifurcation and even rotation within the sector itself. Right now, these subsectors have very different chart looks with most looking fine right here. This sector has been led by Household Durables which includes home builders and other durables for a while now and doesn’t seem to want to give up the spot for long. Looking at the RS in the charts which is from the complete subsector RS list shows it has led the markets as we whole for quite some time until just recently when it took a rest. Internet & Direct Market is right up there in RS trading spots with Durables after moving to the top last week on the price breakout. Add Hotel, Restaurant & Leisure into the mix and you have a strong hand to start with. After that, it starts to get a little more wobbly. I have highlighted in the list above the RS movers show two totally different RS paths, Retail was a leader that needed a rest and is not climbing back while Leisure Goods is a laggard that has climbed off the bottom of the list and is waking up here with the second highest gain for the week. The other weekly leader was Autos which have been a definite laggard. Seeing the laggards catch up and looking to move out of bases is a good sign as the leaders are breaking out.

Consumer Discretionary Leaders

The ETFs in the space are singing the same tune with Housing and Online Retail leading the way, but a solid list of the ETFs in the space outperformed our EW sector on the week with broad participation.

On the stock level, the biggest weekly gainers had some hot names on it like $DKNG or $SG, but from there it spreads out to names we know, but not ones we hear about every second giving some freshness to the opportunities. Moving down to the RS Leaders list, I cut it off at RS of 90, showing only the strongest players in the sector, before looking at the RS Movers at the end. The setups are there, you just have to decide if you want to go after leaders, emerging performance or pullback plays. This is a big enough sector that they are all there and if the sector is getting legs, most will probably play along to some magnitude.

Below are a few sector ETFs and a few of the stock charts that caught my attention. This is just a start. Always do your own due diligence and take ownership of any trade you decide is worth your efforts.

The markets caught themselves last Monday and kept us from seeing downside follow through. Once that happened, buyers trickled back in until the FED meeting opened the spigot all the way for a couple of days. This keeps the grind going and was once again supported by nice rotation under the surface. I suspect this week will be more about positioning into the end of the quarter than it will be about changing character and directions. Corrections can happen any time, but the chart setups are just not showing it right now, so don’t spend all your time looking for a pullback. Unfortunately, I think doing that is what got many in the underinvested spot they find themselves right now.

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!