With US equity markets seeing a jump to start the week, below is an updated look at our S&P 500 sector trading range charts. The first chart below looks at the broad S&P 500. We’ve drawn lines to represent the top and bottom of the index’s long-term uptrend channel. As you can see, the S&P is currently slightly overbought but not overly extended at current levels. Another 1% gain or so and it will be at the top of its channel, though. At some point investors can expect to see some consolidation within this uptrend. Only if we get a break below the bottom of the uptrend channel would it be a bearish signal.
We’ll quickly go through our thoughts on each sector. Consumer Discretionary is similar to the S&P 500 in that it’s trading within a long-term uptrend channel and currently right near the top of it. Consumer Staples looks much different. After trending downward from mid-2016 through year-end, the sector has recently broken above the top of its downtrend.
The Energy sector broke out of a tight range after the election, but recently it has pulled back to key support as we highlight in the chart. The Financial sector made a big leg higher following the election and is now forming a new near-term uptrend channel. At current levels the Financial sector isn’t even overbought due to its trading range shifting upward.
Health Care has the worst looking chart of the cyclical sectors. It managed to break above its downtrend recently, but over the last couple of weeks it has trended lower once again. Industrials looks similar to Consumer Discretionary and the broad S&P 500 — it’s trading within a well-defined uptrend channel and is now slightly overbought.
The Materials sector has surged over the last week, which has actually pushed it above the top of its uptrend channel. This could be the start of a new leg higher similar to the one the Financial sector experienced a couple of months ago. Technology is breaking out to a new 52-week high as well.
The Telecom sector is basically trendless and has been for quite some time, while the Utilities sector is struggling due to higher interest rates. Don’t expect gains for Utilities stocks unless the 10-year yield begins to drop again.
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