As we head into the weekend, we wanted to provide a quick snapshot of where the charts of the ten S&P 500 sectors currently stand. Below we show one-year charts for each of the ten sectors and provide some discussion regarding trends of interest. We have also included the ETF that tracks each sector in parentheses.
One of the most ominous looking charts of the ten is the Consumer Discretionary sector (XLY). As shown below, the sector broke below its 50-DMA on Friday for the first time since the Memorial Day Weekend, and the pattern of a lower high that is forming looks eerily similar to patterns we saw last August and December. While the Consumer Discretionary sector has been under pressure, the Consumer Staples sector (XLP) keeps on trucking higher and actually traded to a new high just today. The Energy sector has been steadily trending higher off the lows earlier this year. This week, the sector took out its April highs but has sold off over the last two days. The sector is overbought and running into resistance from its highs last fall, so some back and forth churning here wouldn’t be a surprise.
One sector that just can’t catch a break these days is Financials (XLF). The sector has been in a pronounced downtrend for the last year now, as it still faces immense regulatory pressure and a dovish Fed keeping rates low. Zero interest rate environments don’t work for banks. The prognosis for the Health Care sector (XLV) is much more positive. Weakness among the biotechs (IBB) aside, the Health Care sector broke its downtrend in April, then pulled back and successfully tested that level and has now rallied again. What was once a downtrend of lower highs is now an uptrend of higher lows.
The chart of the Industrials sector (XLI) is also looking positive. After trading in a sideways range (with some steep sell-offs in between) for the better part of a year, Industrials broke upside resistance in April, and now looks to be establishing a range at higher levels. Like the Industrials sector, the Materials (XLB) sector also broke above upside resistance in April and has been establishing a range at higher levels. The Technology sector (XLK) has been doing a whole lot of nothing over the last year. In the process, it looks to have formed a long-term head and shoulders pattern, which would be a negative. That being said, these types of patterns, especially for indices or sectors, tend to look a lot better with the benefit of hindsight than in real-time.
Finally, as investors continue to reach for yield anywhere they can find it, Telecom Services (XTL) and Utilities (XLU) have been big winners. While the Telecom Services sector is just shy of 52-week highs, the Utilities sector is already there.