With the S&P500 stuck right in the middle between important support and resistance levels, I think right now is probably best to remain neutral towards US equities from a tactical perspective. One of the ways we take advantage of what I think is going to be a lack of trend over the next 6-8 weeks is to put on pair trades that can add to the bottom line while maintaining a neutral stance in the asset class.
I figured now would be as good of a time as any to go over the relative strength for each of the S&P sectors. Here are the SPDR ETFs using 4-year line charts and a 200 day moving average to help define the trends. I kept them very clean and simple so we can really focus on just price and trends.
The first three charts: Materials, Energy and Technology appear to be going through bearish to bullish reversals. Materials look to be just breaking out while Tech is already more mature in this reversing process. Energy is somewhere in the middle. But on a relative basis, these 3 looks great. Materials are my favorite.
Materials vs S&P500:
Energy vs S&P500
Technology vs S&P500:
Financials have been underperforming the S&P500 consistently for over a year. This isn’t a good thing for the overall stock market as Financials are one of the more important sectors where we look for leadership. The fact that they’ve been lagging is, in my opinion, an unsustainable divergence. Something’s gotta give, either S&Ps come down and correct, or financials pick up the pace. Unfortunately there is zero evidence of financials starting to outperform, at least not yet.
Financials vs S&P500:
Consumer Staples are another problem child of this market as they have also been underperforming for over a year. This isn’t somewhere we want to be overweight. I would wait for a bottoming process (maybe similar to materials) before getting more optimistic about this space.
Staples vs S&P500:
The next two are former leadership groups that have gotten hit hard on a relative basis. Both Industrials and Consumer Discretionaries were darlings of the 2013 rally. But recently they’ve struggled; breaking trends and now allowing their 200 day moving averages to roll over. Structurally we prefer to stay more neutral in both of these areas, at least for now. I’m not sure they will keep declining, but I find it hard to believe they will emerge as new leaders any time soon.
Industrials vs S&P500:
Discretionaries vs S&P500:
Utilities are still a disaster relative to the S&P500 and I think more time is necessary if this is part of a bottoming process. I’m going to need to see more out of these guys before getting aggressively overweight this space. I’d stay away and just wait.
Utilities vs S&P500:
And finally healthcare. This one is still in a strong uptrend and there is little evidence that the bull run has ended. I would look for a break in this uptrend line and/or break of the 200 day moving average as warning signals for this group. But so far we haven’t seen that.
Healthcare vs S&P500:
I try to review each sector on a consistent basis looking at both the price charts and the relative strength. This helps us, not only keep a neutral positiion towards stocks, but also helps with idea generation and what stocks and sectors to focus my attention on. Right now, it’s the materials that stand out to me the most.
REGISTER HERE for more information on how to access these relative sector charts with commentary and annotations on a weekly basis
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.
Recommended for You
David Stockman explains why the stock and bond market could be on the verge of a collapse.CNBC
An estate built for legendary singer and actor Frank Sinatra on a granite plateau in the mountains above Palm Desert is for sale at $3.95 million.Los Angeles Times
On “Morning Must Read,” Tom Keene recaps the op-ed pieces and analyst notes that provide insight into today's headlines. He speaks on “Bloomberg Surveillance.” (Source: Bloomberg) More from Bloomberg.com ...Bloomberg
May 21 -- Lumber Liquidators, under federal investigation over allegations that it sold toxic flooring, said CEO Robert Lynch unexpectedly resigned from his post. Bloomberg's Matt Townsend reports on “Bloomberg Markets.” (Update replaces earlier video.)Bloomberg Video
Small changes can boost morale -- and productivity.USA TODAY
DENVER (AP) — They're ubiquitous in Asia, swarming the bustling streets of Bangkok, New Delhi and Beijing.Associated Press
Former Los Angeles Kings left wing Alexander Frolov has put his home in Manhattan Beach on the market for $2.995 million.Los Angeles Times
It is one thing to try to catch the proverbial falling knife. It is quite another to have the patience and make sure a real turn is underway, as the Merrill Lynch team has done.24/7 Wall St.
The reading stretches Japan’s lead as No.1 creditor country to 24 years, with 71 percent more in net assets than China, even after its Asian neighbor surpassed it to become the world’s second-largest economy in 2010. Japan’s net overseas assets grew 13 percent to 366.9 trillion yen ($3 trillion) in…Bloomberg
- Answers NowSponsored
Hollywood is a high-stakes, high-pressure town that is full of people hungry for big time success. This leads to some scandalous and shocking. . .
Pfizer Inc. built itself into a $212 billion behemoth by spending more money on acquisitions than any other drugmaker in the world. It made a failed run at AstraZeneca Plc last year in what would have been a $120 billion tax-inversion deal. The executive chairman was said to have told shareholders…Bloomberg
(Bloomberg) –- Late night negotiations between Alexis Tsipras and his German and French counterparts broke down without any signs of a breakthrough for a deal to unlock bailout funds. Bloomberg’s Hans ...Bloomberg
Good morning, Cincinnati! I'm sure you've got big plans for the long weekend, but here at the Courier's Loveland bureau it's been a rather humbling week, so I'm dialing it down. Omnicare sells to CVS … This story is almost 24 hours old now, but it's a big one: Downtown Cincinnati-based Omnicare…American City Business Journals
A regular paycheck isn't the only way to ensure a steady flow of income. Whether you are already retired or simply planning ahead for retirement, by carefully selecting stocks that pay dividends on the ...Kiplinger
Jim Cramer says Netflix and Amazon are two companies that can raise their prices tomorrow.CNBC Videos
Top technician Jonathan Krinsky says the Dow is trading in its narrowest range to start a year ever. He explains what it means for the market.CNBC
Here's how to keep your health-care costs down in retirement.Kiplinger
A high-flying Morgan Stanley investment adviser, Ami Forte, has the bank facing an enormous fine...Business Insider
Fed warns of market volatility ahead in bond market, but buying of U.S. bonds continues.USA TODAY
Cramer says don't bet against Shake Shack and buy FireEye because every company needs cyber security.TheStreet.com