Power Sector Review

May 26, 2024

The markets told a different message this week depending on which index you concentrated on. Large Caps were mixed with Technology out front helping $QQQ end the week with a gain and $SPY hold near flat. Other $SPY areas weren’t so lucky and the index had an indecision candle (doji) to end the week. All of this while $IWM and small caps rolled over a bit.

The Big Picture

The TP daily chart shows us how different the action was in each index. All of them remain in RSI bull ranges and only $IWM is testing even the 50 level here much less the 40 level.  I marked the RSI and 9sma of RSI (Nitrous) went over 60 and quickly retreated. That is a small caution while the RSI Positive Reversal in the $QQQ is a good sign of continued momentum. One side will likely win this week and take the short term direction. I prefer it to be the $QQQ, but am prepared if the anchor $IWM tries to keep this consolidation going a bit longer.

The equal weight Power Universe is pulling back into the MA bands and the 45ema where it found support Thursday and Friday with the RSI bouncing at the midline in a bull range. If the CFG turns up Tuesday, I would give it the benefit of the doubt.

Materials and Energy shifting back up the list as Utilities finally gives up the top spot. However, the big mover was Information Technology. I have been mentioning the sector’s RS starting to climb off the bottom ranks over the least week and a half. This week the sector lost .03% or basically flat, but still moved up 46 RS points. Nothing gained this week, in fact, most sectors were down more than 1% on the week. Some were down much more than that. Consumer Staples and Real Estate were the two that dropped the most RS points on the week and neither did well percentage wise either. The defensive sectors just aren’t performing here, so Utilities performance likely being driven by newer catalysts like AI and outlook of lower interest rates versus just the normal safe haven play.

Snapshot Highlight

The Snapshot review has its own daily report now, so we be highlighting one of the spreadsheets each week that stands out in our research. 

Here we look at Thursday’s Short-term Breadth Snapshot showing new 10 day lows blew out quickly. A few moving average measures were starting to light up and Breadth Thrusts were starting to hit some minor washout levels in a few specific spots. Not nearly enough for a broad signal, but that’s not what we would expect here. We are getting to a zone that a reversal gets more likely in a corrective phase. Friday’s bounce back action was a good start to negating the liquidation break. Next week will decide.

Subsector Relative Strength

A change from last week’s momentum higher, to a stall, especially in the smaller names. The winners and losers from each time frame are highlighted. You can see Independent Power & Renewables is a leader across all time frames, but the rest of the Utilities subsectors look to be fading some. Looking through all the sectors, most have one or two strong RS subsectors and the rest have mediocre or out right bad relative strength like we see inside Consumer Discretionary. It’s not just that sector though, it is all the way down the list. Well, except for Consumer Staples, they are all below 50. Sectors with the most subsector relative strength gains were Industrials and Information Technology. If that trend continues, it will be a good summer.

There were not very many gainers for the week, but considering the overall loss in the Power Universe lost a little over 2% on the week. Many are leaders starting to emerge from their consolidations. Every one of these looks good if you take the time to go to each page.

Outside of Independent Power & Renewables, Utilities subsectors have disappeared from the leaders board replaced by a broad swath of sectors represented. With quite a few new ones rotating on the list this week, many of the same names from the list above. The RS Movers list shows all the rotation for the week with a solid list of gainers and losers. Considering it was a down week overall, the losers lists suffered some pretty rough weeks.

Sector ETF Relative Strength

On the Macro Page on the website we cover sector ETFs separated into lists by the size of the companies. Here we are looking at them all ranked together to see who is leading overall and not just in market cap segments.

The sector by size ETF list has some rotation as well. Utilities still holding the top two spots, but Technology and Materials both put in good weeks both from a relative and absolute standpoint. Industrials is perking up on this list to confirm what we saw. Large caps are still leading as the Equal Weighted ETFs are large cap equally weighted unlike our all-cap indexes. So, those ETFs are more large cap indicative. Unfortunately, there is not a mid-cap specific suite of sector ETFs for us to follow. That would be great, but not something I see coming anytime soon. The small cap ETFs up in the top half of the mix that are performing well are from the strongest sectors overall like Materials, Technology and Industrials. Even in this list, the defensives aren’t doing much, hanging out near the bottom of the list with Consumer Discretionary ETFs which isn’t a defensive sector, but can’t seem to get any traction on this rally either. The ETFs are aligned similar to the equal weight sectors above, but give investable options to consider.

Wrap Up

It was not an overly exciting week, but there was rotation that should be noted back into Technology and Industrials while the defensive sectors outside of Utilities were losing relative strength. And most of Utilities subsectors did lose RS. Materials, Information Technology, Industrials and Energy, then probably Financials, are where I will start to dig deeper. But it really isn’t about sector leadership through subsector concentration right now, it’s more about one or two spots within most sectors are working and grinding the broad universe higher again. 

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!