The Best Five Sectors This Week #70
Key Takeaways
- Technology remains the top-performing sector, showing strong relative strength and momentum on weekly and daily RRG charts.
- Energy is weakening, with a risk of entering the lagging quadrant as its RS-ratio approaches critical levels.
- Industrials and Materials are breaking out of consolidation patterns, signaling positive price and relative strength trends.
- Real Estate is nearing key resistance, with potential for upward movement if it breaks above the 45 level.
After a week in which the S&P 500 ($SPX) closed about half a percent higher last Friday, the sector rankings have undergone significant changes. Nine out of the 11 sectors shifted positions, reflecting a dynamic market environment. Despite these moves, the top five sectors remain unchanged, highlighting their continued strength.
Top Five Sectors Hold Steady
Technology maintains its position at the top, followed by Energy, which remains static at number two. Industrials moved up to third place from fourth, while Real Estate climbed to fourth from fifth. This shift pushed materials down from third to fifth. The stability among the top five sectors suggests ongoing leadership in these areas.
In the lower half of the rankings, Consumer Staples moved up to sixth from seventh. Financials made the most significant jump, rising from the bottom at eleventh up to seventh. Health Care advanced from ninth to eighth, while Utilities slipped from eighth to ninth. Consumer Discretionary experienced a sharp drop from sixth to tenth, and communication services fell from tenth to eleventh.
- (1) Technology - XLK [71%]
- (2) Energy - XLE [6%]
- (4) Industrials - XLI [16%]*
- (5) Real Estate - XLRE [4%]*
- (3) Materials - XLB [4%]*
- (7)Consumer Staples - XLP*
- (11) Financials - XLF*
- (9) Health Care - XLV*
- (8) Utilities - XLU*
- (6) Consumer Discretionary - XLY*
- (10) Communication Services - XLC*
Weekly RRG
On the weekly Relative Rotation Graph (RRG), Technology continues to push deeper into the leading quadrant and remains the only sector in that space. Energy is rotating through the weakening quadrant on a long tail, while Real Estate, Industrials, and Materials have crossed into the lagging quadrant from weakening. All other sectors are moving further into the lagging quadrant and, notably, there are no sectors in the improving quadrant on the weekly RRG.
Daily RRG
On the daily RRG, Technology is undergoing a corrective move from leading through the weakening quadrant but still holds a high reading. It has the opportunity to complete a rotation back to the leading quadrant. The other four sectors in the top five are clustered in the improving quadrant, all on a positive RRG heading and poised to cross into the leading quadrant again. If this momentum continues, it could pull the weekly tails back up and align with positive performance.
Sector Highlights
Technology
The Technology sector continues to perform well on both the price chart and the raw relative strength chart. The RS-ratio line is at its highest level in five years and, although relative momentum is leveling off, the overall chart remains strong.
Energy
Energy appears to be breaking down from a consolidation pattern that lasted six to eight weeks. There is price support around 52.5, but the raw RS line is descending without forming a bottom. The RRG lines are moving lower and the RS-ratio line is close to crossing below 100, which would place energy in the lagging quadrant. This sector warrants close attention.
Industrials
Industrials are breaking out of consolidation to the upside, reaching new highs on the price chart, which is a positive sign. The raw relative strength line shows a sharp upward move with a higher low, and the RS-momentum line is attempting to establish a low, which could eventually lift the RS-ratio line. The upward price movement is beneficial for the sector’s relative strength.
Real Estate
Real Estate is moving higher and testing overhead resistance just above 45. A break above this level could unlock new upward potential, possibly targeting the late-2021 high around 52. The raw RS line is stabilizing within a sideways range while the RS-momentum line is moving flat, needing more time to pull the RS-ratio line upward.
Materials
Materials are breaking away from consolidation while staying within a rising channel, which is a positive sign. The raw RS line is forming a new low, higher than the relative low at the end of last year. The RS-momentum line is leveling off, but more relative strength is needed to lift the RS-ratio line.
Portfolio Performance
The portfolio composition and weights in the cap-weighted portfolio remain unchanged. Performance for the week was positive, with the spread between the portfolio and the S&P 500 narrowing from 7.6% to 6.4%. Which means the portfolio gained 1.2% versus the S&P 500. Still 6.4% below the S&P 500 since inception, but catching up rapidly.
#StayAlert, -Julius
