The Best Five Sectors This Week #80

At the end of last week, the S&P 500 closed down about 1.5%. However, sector performance varied significantly:

• Materials rose more than 3%
• Energy gained 1.6%
• Industrials dropped 3.4%
• Technology fell 4.8%
• Healthcare surged 4.8%

These differences contributed to the S&P 500's overall decline of around 1.5%.

Sector Ranking Movements

Using the RRG (Relative Rotation Graph) ranking model, the top five sectors remained unchanged, but their positions shifted. Healthcare moved up from fourth to second place, pushing financials and industrials down to third and fourth respectively. Technology stayed at number one while energy held onto fifth. Positions six through eleven were unchanged from the previous week.

1. (1) Technology - XLK [52%]
2. (4) Health Care - XLV [13%]*
3. (2) Financials - XLF [19%]*
4. (3) Industrials - XLI [12%]*
5. (5) Energy - XLE [4%]
6. (6) Materials - XLB
7. (7) Real Estate - XLRE
8. (8) Consumer Discretionary - XLY
9. (9) Consumer Staples - XLP
10. (10) Communication Services - XLC
11. (11) Utilities - XLU

Weekly RRG

Healthcare and financials are now firmly in the leading quadrant. Healthcare maintains a positive heading, nearly flat in relative momentum, while financials has started to lose momentum after entering the leading quadrant.

Technology is continuing its rotation through the weakening quadrant at a negative heading, but still holds the highest RS-ratio reading.

Energy, though inside the lagging quadrant, is rapidly improving. Its tail is pointing upwards and, at the last node, is picking up on the RS-ratio scale. Despite being one of the weaker sectors, it stands out among the rest.

Industrials is noteworthy. Its tail was inside the improving quadrant and heading for leading, but last week saw a rapid rotation, with the tail hooking down toward the lagging quadrant. This sector warrants attention, as such a rotation is typically not a strong signal.

Daily RRG

Healthcare and energy are inside the leading quadrant. Energy is losing some momentum at the end of its tail, but now has the highest RS-ratio reading. Healthcare remains strong.

Technology has quickly rolled over while inside the leading quadrant and is now rotating into the weakening quadrant. This is concerning, as both the weekly and daily tails of XLK are inside the weakening quadrant at a negative heading, putting the sector at risk.

Energy is confirming its improvement on the daily RRG. Its weekly tail has crossed into the improving quadrant and appears to be strengthening further.

Industrials rotated from improving into lagging at a negative heading, which explains the sharp hook seen on the weekly tail. This is a negative signal for the sector.

Sector Highlights

Technology

On the price chart, technology remains above the upper boundary of the recent consolidation pattern. Weakness is evident in the raw RS line and RRG lines, with the RS line making a lower high and moving toward its previous low. If that low is broken, it will likely pressure the sector’s relative strength. The RRG lines are already pointing sharply lower, so monitoring technology’s performance is crucial.

Healthcare

Healthcare stands out as being the current best sector. The upward break above all-time highs from 2024 and 2025 is holding, with plenty of support levels below. More importantly, the break of the downward resistance line over major peaks in raw relative strength since 2023 is now confirmed. The RRG lines reflect this, with the RS-ratio comfortably above 100 and RS-momentum at high levels, continuing to rise. Healthcare is well-positioned for the coming weeks.

Financials

Financials is holding up on the price chart and is close to reaching the highest level of the past four weeks. The raw RS line is making another attempt to break above horizontal resistance from the 2024 and 2025 relative lows. This level was tested earlier this year and recently. If financials can break through, it would signal a new impulse for the sector.

Industrials

Industrials failed to hold after breaking upwards and is now testing the lower boundary of its rising channel. If this support breaks, it will signal further weakness. The raw RS line is moving rapidly toward the lower boundary of its range since 2023. A downward break would be a very negative signal. The RRG lines are topping out, with RS-momentum above 100 and RS-ratio below 100, both pointing lower. The tail is at a negative heading inside the improving quadrant but is now hooking down toward lagging.

Energy

Energy is holding above the breakout level but struggling to break the all-time high from late March and early April. The raw RS line is forming a slow, rounding bottom, with a shallow rhythm of higher highs and higher lows. This is reflected in the RRG lines, which are both pointing upwards. RS-momentum is nearly crossing above 100, which would place XLE in the improving quadrant.

Portfolio Performance

Last week’s -4.8% drop in technology significantly impacted the portfolio, but the effect was limited by strong positions in other sectors. The overall damage was around 1%, and performance is now lagging the S&P by 8% since inception.

#StayAlert, -Julius