One of the exercises that I find really valuable is comparing the relative performance of each of the S&P sectors to each other. Today we are breaking down 3-year daily line charts of each sector vs the S&P500. I also include a 200-day simple moving average to not only help define the trend, but also to see where prices are compared to the long-term smoothing mechanism.
We’ll start with the best looking charts: Healthcare and Technology which have both been nicely above rising 200 day moving averages for some time now.
The next two: Staples and Utilities look like bearish to bullish reversals. These were previously in downtrends relative to the S&P500 but now appear to be turning up and trading above upward-sloping 200 days:
Consumer Discretionaries and Industrials have rallied back to their mean, but with a downward sloping 200 day, a neutral stance from a relative standpoint is likely best here:
Financials are just kind of there. The lack of trend tells us that they are trading with the market and are right near the mean. So not much to do here, although I would argue that they look better than the previous two above.
The last three are easily the worst of the bunch: Energy, Materials and Telecom. Each of them on a relative basis are well below downward sloping 200 day moving averages and other than perhaps a brief mean reversion, the trends here are still down. I would not trust these at this point to maintain a sustainable rally relative to the S&P500:
I like to do this periodically to get a good perspective on where money is flowing. I don’t really care what the sell side thinks in terms of over-weighting and under-weighting sectors. To me, price is what pays and the trends here (or lack there of) can be seen very clearly in the charts above. That’s enough as far as I’m concerned.
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