Edition 0020. 08.28.2022. Week of 08.28 - 06.28.2022.
This weekly commentary examines the 11 S&P equally weighted sectors.
Key Takeaways
All 4 cyclical sectors - discretionary, financials, materials, and real-estate - are trending lower. All 4 sectors have momentum which has improved from negative to neutral as stocks have bounced from their June lows.
Defensive sectors - staples, utilities, and healthcare - remain mixed. Staples and utilities are relatively strong, though have recently turned rangebound as stocks have bounced from their June lows. Healthcare remains in a downtrend. I am watching for trend continuation from staples and utilities to see if the behavior exhibited by big money stays the same after this recent bounce in stocks.
Sensitive sectors - industrials, technology, communication services, and energy - are mostly trending lower with energy being the exception. I am looking for momentum to flip positive to signal trend continuation in energy.
52-week relative strength is led by utilities, staples, and energy, with a recent appearance from industrials.
Large-Cap Leadership
S&P 500 Equally Weighted ETF (RSP) / S&P 500 Cap Weighted ETF (SPY). Click to enlarge.
This relative strength chart shows the equally weighted ETF, RSP, as the numerator and the cap-weighted ETF, SPY, as the denominator. The faster, solid, moving average is the 13-week simple, representing one quarter, and the slower, dashed, moving average is the 52-week simple, representing one year.
Decisive and sustained leadership from SPY ended after markets started to rise from the 2020 Covid low. RSP was in control during the final quarter of 2020 and the first quarter of 2021. Since then, the last year has been a battle. The ratio has been stuck in its trading range with a flat 52-week simple moving average.
Performance & Relative Strength
Sector Performance Table 1.
Click here for the performance table guide. Click the performance table to enlarge.
This first performance table sorts the ETFs using the location of the sector’s relative strength line, against RSP, in its 13-week range.
Over the last 13 weeks, the leadership has been from RGI, the equally weighted industrial sector, and from RYU, the equally weighted utility sector. These ETFs have their relative strength lines in top 90% of their 13-week ranges.
Unfortunately, RGI printed a 5-week closing low last week as price itself remains 41-weeks removed from its previous 52-week high and trending lower. RYU on the other hand is just one week removed from printing its last 52-week closing high.
Sector Performance Table 2.
Click here for the performance table guide. Click the performance table to enlarge.
This table sorts the ETFs using the location of the sector's relative strength line, against RSP, in its 52-week range.
The top two ETFs remain the same with RGI and RYU. Just below those, we have the equally weighted consumer staples ETF, RHS, and the equally weighted energy ETF, RYE. RYE printed a 5-week closing high last week.
Without looking at the price charts, we can see RYU and RHS have green 1s in their trend and momentum score columns. This shows quantitatively, using price, its 40-week moving average, and the 12,26,9 PPO momentum oscillator, they are the healthiest technically.
Energy retains its green 1 in trend, meaning price is above its upward sloping 40-week average, though its momentum score is a yellow 2 which means that the PPO line itself is above 0 but the histogram is below 0. I am on the lookout for trend continuation in RYE.
Year-to-date sector and RSP performance.
Click to enlarge.
Looking at the year-to-date performance of the sectors, the story has been the same all year.
Energy, RYE, is the outlier and upside winner with a gain of 49% year-to-date.
Utilities, RYU, and Staples, RHS, have been vacillating above and below the 0-line all year, though utilities has made a real push lately. After pressing higher through August, RYU is now up more than 8% year-to-date with RSP down 11.44%.
Large-Cap Sector Summary Table
Click to enlarge.
Source for Weightings:
Looking at the quantitative model, we find roughly 83.60% of RSP’s, the equally weighted S&P 500 ETF, market capitalization in downtrends with only 16.45% in uptrends.
We have seen an improvement in momentum as more cap has shifted from negative to neutral. This is certainly a step in the right direction, though we have yet to see much improvement in price itself or leadership from offensive sectors such as technology and discretionary, though there has been a recent push from industrials .
We continue to see more ranked lows than highs.
Note, the discrepancy between my subjective trend assessment and the model’s is because my subjective work is faster to react and looking more strictly at price highs and lows. This reacts faster than outputs from moving averages. This is why I see RHS, RYU, and RYT as rangebound.
Sector Charts!
Cyclical sectors: sectors that tend to lead as the economy expands and lag as the economy contracts.
Consumer Discretionary: RCD. Click to enlarge.
Financials: RYF. Click to enlarge.
Materials: RTM. Click to enlarge.
Real Estate: EWRE. Click to enlarge.
Defensive sectors: sectors that provide goods & services that people require in both economic expansions and contractions.
Consumer Staples: RHS. Click to enlarge.
Health Care: RYH. Click to enlarge.
Utilities: RYU. Click to enlarge.
Sensitive sectors: sectors that rise and fall with the general economy, but at the same time have a sensitivity to additional factors.
Communication Services: EWCO. Click to enlarge.
Energy: RYE. Click to enlarge.
Industrials: RGI. Click to enlarge.
Technology: RYT. Click to enlarge.
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