The Best Five Sectors This Week #78
Key Takeaways
- Energy surged 7.6%, re-entering the top five sectors, while the S&P 500 remained flat overall.
- Technology leads the sector rankings, with Financials and Industrials showing strength.
- Defensive sectors like Utilities and Staples sit at the bottom, signaling a "risk-on" market sentiment.
- Daily and weekly RRG charts show improving momentum for Energy, Health Care, and Industrials.
Energy Surges, S&P 500 Holds Steady
After a week in which the S&P 500 ($SPX) remained virtually unchanged, the stock market saw significant moves in individual sectors. Technology climbed 1.3%, Utilities rose 1.7%, and Energy delivered a standout 7.6% gain. On the downside, Materials slipped by 1% while Consumer Discretionary dropped 2%. These shifts balanced out, leaving the S&P 500 flat overall.
Top Five Sector Composition: Energy Returns
The jump in the Energy sector had a notable impact, bringing Energy back into the top five sectors. Technology continues to hold the number one spot, followed by Financials. Industrials moved up to third from fourth, while Health Care dropped from third to fourth. Energy re-entered the top five, moving up from sixth after spending just one week outside the portfolio.
Materials advanced to sixth from seventh, and Real Estate fell out of the top five to seventh. Discretionary gained one position to eighth, Consumer Staples dropped to ninth, and for the first time in a long while, Communication Services is no longer at the bottom. It now sits at 10th, with Utilities in 11th.
- (1) Technology - XLK [52%]
- (2) Financials - XLF [19%]
- (4) Industrials - XLI [12%]*
- (3) Health Care - XLV [13%]*
- (6) Energy - XLE [4%]*
- (7) Materials - XLB*
- (5) Real Estate - XLRE*
- (9) Consumer Discretionary - XLY*
- (8) Consumer Staples - XLP*
- (11) Communication Services - XLC*
- (10) Utilities - XLU*
Risk-On Despite High Levels
Despite widespread commentary about extreme highs, overbought conditions, and a "toppish" market, the sector constellation suggests a risk-on environment. Technology, Financials, and Industrials are considered offensive sectors. Health Care, once seen as defensive, is increasingly viewed as offensive due to its technology stocks.
At the bottom of the list, Consumer Staples, Communication Services, and Utilities rank ninth, 10th, and 11th. Staples and Utilities are classic defensive sectors, while Communication Services can be either, depending on the group. With these defensive sectors at the bottom, the market continues to be positioned for further gains based on sector rotation.
Weekly RRG
- Technology is continuing its rotation through the weakening quadrant but remains at a high RS-ratio, with room to move back up.
- Financials have crossed into the leading quadrant, confirming the sector's strength.
- Health Care is bending over but is nearing the leading quadrant.
- Industrials is heading strongly into the improving quadrant and nearing the leading quadrant.
- Energy, while still in the lagging quadrant, is rapidly improving on the RS-momentum scale.
Daily RRG
- Technology has completed its rotation through all four quadrants and is back in the leading quadrant with a positive heading. This should pull the weekly tail back up.
- Industrials made a sharp hook inside the lagging quadrant. The sector is now confirming the weekly rotation.
- Health Care and Financials, still in the lagging quadrant, are starting to improve.
- Energy shows a strong move, rotating through the weakening quadrant and nearing a crossover into the lagging quadrant, confirming its weekly strength.
Both weekly and daily Relative Rotation Graphs for Energy are pointing higher on the RS-momentum scale, with the daily tail rotating back to the leading quadrant—a strong sign expected to influence the weekly chart.
Sector Highlights
The good news is that I managed to publish this update at the start of the week ;) The bad news is that not much changed since Friday...
Technology
Unchanged since last week, still looking strong.
Financials
XLF is holding up well after the breakout, unchanged.
Industrials
XLI shows no changes, maintaining strength.
Health Care
XLV shows no changes, holding up after the breakout.
Energy
Newly back in the top five, XLE is showing a strong breakout from a flag-type consolidation and holding up well, with RS-momentum starting to move up.
Portfolio Performance: Slowly Closing the Gap
The portfolio remains behind the S&P 500, but last week's relative gains have narrowed the gap to under 8%, currently at 7.4–7.5%.
#StayAlert, -Julius
