Edition 0001. 01.15.2022.
This is the weekly commentary that reviews all 11 sectors that form the S&P 500 ETF, SPY. We are looking at performance, trend, relative strength, and momentum.
We start with a performance table that allows us to track how the symbols have performed over several rolling periods of time. Here are a few notes to help you interpret the table.
Quantitatively, the general trend is determined by a rising 40-week simple moving average.
Quantitatively, the general momentum condition is determined by a 12,26 PPO oscillator and its relation to the 0 line.
The ranking of closing highs and lows is as follows: 4 = all-time closing high or low. 3 = 252 day closing high or low. 2 = 63 day closing high or low. 1 = 21 day closing high or low.
Last 52 W.C.H. is a column that returns the number of bars since the last 52-week closing high. 1 indicates the current bar.
Sector Performance Table.
Sector summary table. Sorted by the 5-day rate-of-change.
In the 2nd week of trading, only 2 of the 11 sectors finished with a positive change. The big winner again, and gold medalist, was energy (XLE)with a 5.17% gain. Communication services (XLC) finished with the silver gaining 16 basis points. The Sector Inspector kept the bronze medal for himself this week. The worst performer was real estate (XLRE) which lost just shy of -2%, while discretionary (XLY) and utilities (XLU) finished down roughly -1.5% each. Other notes include new highs and lows. XLE made a 52-week closing high, while healthcare (XLV) and real estate made 21-day closing lows. The sectors’ average weeks from all-time closing highs is 5.4%. Financials (XLF) and consume staples (XLP) are 2 bars from their last all-time closing highs, while XLV, XLU, XLRE and materials (XLB) are 3 bars from their last all-time closing highs. We can note, XLC is the only sector that is not in a quantitative uptrend as determined by the slope of its 40-week simple moving average, and its momentum is negative as determined by the 12/26 PP (MACD) oscillator being below the 0 line.
Sector summary table. Sorted by the year-to-date rate-of-change.
The YTD performance looks a touch better than last week’s performance with 3 sectors generating positive returns. XLE has gained more than 16% in 2 weeks. XLF has gained 4.5%. XLI has gained just 3 basis points.
Relative comparison chart. This shows the year-to-date performance in a more visual way.
Insert relative comparison chart
Sector Charts
Cyclical sectors: sectors that tend to lead as the economy expands and lag as
the economy contracts.
Consumer Discretionary (XLY)
Trend: XLY finished the week in 11th place, losing -2.48% and underperforming SPY. While the 40-week simple moving average is sloping up, price looks to be rangebound for now. The bearish engulfing candle from 2 weeks ago was confirmed with this week’s candle closing below its low. Bulls are looking for a move above $215. Bears are looking for the 40-week, and then $178, to fail as support.
Relative strength: after breaking above a downward sloping trendline in September 2021, XLY showed strong relative performance until the double top pattern was confirmed in December 2021 with a break below the November 2021 trough. The RS line is making a bit of a lower low, though holding above its 40-week simple moving average.
Momentum: momentum did confirm new price highs in November 2021.
Financials (XLF)
Trend: XLF finished the week in the 8th position. It was sold for a loss of 83 basis points. XLF is one week from a new all-time high. Price is in an uptrend as shown through higher-highs and higher-lows. The 40-week simple moving average is also rising.
Relative strength: relative strength has certainly been waning during the last 2 months of 2021 with the RS line breaking below its 40-week simple moving average. The strong performance two weeks ago gave the RS line the strength it needed to remount its 40-week SMA. We are looking for it to break above the falling wedge pattern and make a high above October 2021’s high.
Momentum: momentum, while falling and failing to confirm the new all-time price high, is still positive. We want to see momentum break above its downward sloping trendline.
Materials (XLB)
Price: materials finished the week in the 6th position, though experienced selling and closed with a loss of -.56% for the week. Materials did not beat SPY as it did last week. Price is 2 weeks from its last all-time high. XLB is in an uptrend as shown through higher-highs and higher-lows. The 40-week simple moving average is also rising.
Relative strength: RS topped in May of 2021. After breaking its 40-week SMA, the RS line continued down and bottomed in September of 2021. RS has been rallying and outperforming SPY for roughly the last 63-days, and it broke above the downward sloping trendline in November of 2021. The performance chart above confirms XLB’s outperformance since roughly October 2021. The next step is for the RS line to break above the gently downward sloping 40-week SMA.
Momentum: after confirming the all-time price high in May of 2021, it has lessened as price formed a falling channel. Momentum broke above its down sloping trend line in October of 2021, just before the RS line and price broke above theirs in November of 2021. Momentum remains positive.
Real estate (XLRE)
Trend: For the second week in a row, the real estate sector finished dead last. Last week, the selling eliminated another -2%. That said, XLRE is only 3 candles from its last all-time high. XLRE has been the 8th best performer since the Covid low, gaining almost 78% in value, while over a 1-year lookback period XLRE is second to only energy, gaining almost 33% in value. XLRE is in an uptrend as show through higher-highs and higher-lows. The 40-week simple moving average is also rising. The bearish engulfing candle from 2 weeks ago has been confirmed with last week’s candle closing below the low of the engulfing.
Relative strength: XLRE has been exhibiting RS since January 2021. Its RS line confirmed its last all-time high, though testing its 40-week sma and its upward sloping trendline as for support.
Momentum: momentum is positive, though it did not confirm the last all-time high as rs did. The RS line is now coiling.
Defensive sectors: sectors that provide goods & services that people require
in both economic expansions and contractions.
Consumer Staples (XLP)
Trend: staples lost 50 basis points this last week. The sector finished 5th, and it did not beat SPY. XLP is 2 bars from its last all-time closing high last week. As shown through higher-highs and higher-lows, XLP is in an uptrend. The 40-week simple moving average is also rising.
Relative strength: XLP has been a sector to avoid since it showed relative strength as the market crumbled into the Covid-lows of March 2020. Since then, the relative strength has been in a downtrend. That downtrend bottomed in November of 2021 and has remounted its 40-week SMA. As of two weeks ago, XLP has been outperforming SPY for least the last 126 trading days. It has given up that spot and is no longer outperforming over the last 126 trading days, but has gained double what SPY has gained over the last 63 trading days.
Momentum: the negative divergence from June through September 2021 has been negated, and momentum has been positive, strong, and confirmed the last all-time high.
Healthcare (XLV)
Trend: the Health Care Sector finished the week in 4th place, though showed a loss of 21 basis points. That said, XLV is just 3 bars from its las all-time closing high. XLV is in an uptrend as shown through higher-highs and higher-lows. The 40-week simple moving average is also rising. Note the green ark. Those 3 candles make up an evening star formation. While technically imperfect because the large down candle should not have its real body overlap the star’s real body at all, it is still a shooting star. It was confirmed with last week’s candle closing below the 3rd candle of the formation. Bulls are looking for the 40-week SMA to hold as support.
Relative strength: the relative strength of XLV has been declining since it outperformed, like Staples, into the Covid-plunge. Since then, it has continued to show a lack of relative strength against the S&P 500. We did see a period of strengthening relative performance from April 2021 through September of 2021. Relative strength is now tightening up in a coil as the 40-week SMA tries to turn up. We will watch for a resolution in RS as it breaks in one direction or another.
Momentum: while positive, we see a negative divergence failing to confirm the last all-time high.
Utilities (XLU)
Trend: the Utilities Sector (XLU) finished 9th of 11 last week. Selling resulted in a loss of -1.43%. Price is just 3 bars from a 52-week closing high, and it is noteworthy that price is tying to break above its pre-Covid level. XLU is in an uptrend as shown through higher-highs and higher-lows. The 40-week simple moving average is also rising. The bearish harami from 2 weeks ago is confirmed with the last bar closing below the harami.
Relative strength: Rs has been in a downtrend since March 2020. The RS line is tested the 40-week SMA from below and now looks to be failing and violating the upward sloping trendline.
Momentum: XLV has positive momentum, but there is a negative momentum divergence that formed as price tried to recapture its pre-covid levels.
Sensitive sectors: sectors that rise and fall with the general economy, but at
the same time have a sensitivity to additional factors.
Communication Services (XLC)
Trend: the communication services sector finished the week 2nd of out 11, and gaining 16 basis points. XLC is an outlier amongst sectors right now because it is the only sector with quantitatively negative momentum and trend with the 40-week SMA not sloping up. Price did make an all-time high in September 2021, 20 weeks ago. Since then, price has made a lower-low, a lower-high, and another lower-low indicating price is in a downtrend. That said, price has retraced a normal amount to the Fibonacci level of 38.2 after the large move up. Are we seeing a double bottom here, or is about to breakdown?
Relative strength: RS was climbing, but had some volatility, until it peaked in March 2021. From there, the rs line failed to make a higher-high and failed at its 40-week SMA in October 2021. After falling below at the 40-week SMA, the RS line has continued its decline. Last week though, we see relative strength as XLC was mildly up and performed better than SPY which lost 9 basis points.
Momentum: negative, but in a new development with the most recent week of trading, like RS, momentum might be turning up and breaking above its downward sloping trendline.
Energy (XLE)
Trend: Once again, taking the gold metal and finishing with a gain of over 5%, is XLE. XLE has now outperformed every sector, and SPY, over a trading week, month, quarter, 2 quarters, 3 quarters, 4 quarters, and since the Covid low. Since that low, price has gained almost 149.50%. Price close at another 52-week high.
Quantitatively, using our 40-week simple moving average and 12/26 PPO (MACD) momentum oscillator, price and momentum are positive. They have been since they turned positive in late December 2020. It is noteworthy here, the grey horizontal lines represent Fibonacci retracement lines drawn from XLE’s all-time high in June 2014 down to the Covid low of March 2020. Price has now retraced and is pushing through, the non-Fibonacci level of, 50%. The 61.8% is level is around $72.
Relative strength: XLE has been outperforming SPY and leading all 11 sectors for almost two years now as explained above. In that time, there were 2 periods of relative weakness, but not enough to dethrone XLE from the podium over any time frame shorter than almost 2 years. The RS line continues to hold its upward sloping trendline.
Momentum: momentum peaked in March 2021 and is now coiling. We are watching for a resolution of momentum in either direction.
Industrials (XLI)
Trend: after its exciting bronze medal performance 2 weeks ago, the industrial sector finished 7th, losing 60 basis points. Price has been largely bound by a rectangle for more than 37 weeks now, 2 weeks short of 3 quarters of trading. XLI does still have an upwards sloping 40-week simple moving average with price inching higher, so for now XLI remains in an uptrend.
Relative strength: the RS line has been declining since price peaked in May 2021. It has now broken above a downwards sloping trend trendline and heading up to test its 40-week SMA from below.
Momentum: the PPO oscillator line is positive, and like the RS line, momentum has broken above its downward sloping trendline. This hints at a more upside and an upwards resolution from the rectangle.
Technology (XLK)
Trend: while the 28% (of SPY market cap) gorilla in the room finished 3rd of 11 this week, it still gave back 10 basis points. Price made a weekly all-time closing high 6 weeks ago in December of 2021. XLK is in an uptrend as shown through higher-highs and higher-lows. The 40-week simple moving average is also rising.
Relative strength: the RS line peaked in August 2020 and went sideways for roughly 7 months until it broke below its 40-week SMA in March 2021. After resolving higher from a falling wedge that lasted from February of 2021 through June of 2021, RS has been respecting an upwards sloping trendline until last week. We are watching for the RS line to respect the 40-week simple moving average as support and remount the trendline.
Momentum: momentum has been a little flat over the last 6 months or so. While it did not confirm the last all-time closing high, it is still positive. I did mark the negative divergence. We want the PPO oscillator to hold the flat green support line.
Sector Summary Table
While not positive year-to-date, on the surface, the sectors are all in decent technical shape. On average, the sectors are only 5 weeks from their last 52-week closing high and only 4.5% below these last 52-week closing highs.
Source for current weights: https://www.sectorspdr.com/sectorspdr/
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