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Sector Relative Strength. Monthly Charts. March 2022.

This special edition will look at the relative strength charts for all 11 sectors of the S&P 500. Month and quarter ended 03.2022. 03.31.2022.


Intro

March 2022 has just ended. This marks the end of the month and of the 1st quarter of 2022. What follows is a journey through the long-term relative strength charts for each of the 11 S&P 500 sectors using monthly data. When looking at these charts using monthly data as the aggregation period, it is remarkably easy to bracket out the daily and weekly trends which we spend the majority of our time assessing. We must take great care to ensure we place the trend ripples into the context of the trend waves into the context of the dominating trend tides which these charts illustrate.


Please note, this investigation will completely ignore the macro environment of war, treasury yields, inflation, earnings, news, and the like. Now, we explore the current relative strength trends using the data contained in price.


The following charts are sorted by market capitalization, as of the close on March 21st 2022, as a percentage of SPY in descending order. This chart is accurate as of 03/31/2022.



On these monthly relative strength charts, the green moving average is the 6-month moving average of the 12-month moving average. The extra level of smoothing helps to reduce the naturally occurring whipsaw inherent in the moving average. The indicator in the bottom panel turns green when this 6-month moving average of the 12-month moving average is sloping up.


The Charts!

XLK / SPY

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Technology has been in a secular uptrend relative to SPY. We have the moving average sloping upwards for the last 8 years, since June of 2014. In December of 2021, relative strength bumped into its overhead resistance level, which held, from June 2000 almost 22 years ago (red horizontal line).


The blue upward sloping trendline has been an important level over the last 20 years, since 2002. It has served as both support and resistance multiple times as evidenced by the arrows. Recently in late 2020, this blue line served as support. In a recent development this last quarter, relative strength has broken below its blue trendline. While relative strength is at a potential polarity point, its last swing high, the negative divergence in momentum is suggesting that the next target is more likely its last swing low at the orange horizontal line.


This year-to-date, on an absolute basis, XLK has lost 8.59% in value, while SPY has lost 4.91%. XLK is 10% below its last 52-week closing high from 66 trading days ago. On a relative basis, XLK has underperformed SPY this year-to-date by 3.68%. From a long term-perspective, this ratio is in an uptrend as understood using higher-highs and higher-lows. This is confirmed by the slope of our smoothed moving average. However, relative strength breaking below its blue trend line, the major overhead resistance from 20+ years ago, and the declining momentum are all worrisome developments. This sector requires serious caution for the foreseeable future.


XLV / SPY

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Relative to SPY, XLV has been in falling channel for almost 7 years since the middle of 2015 after outperforming SPY from 2011 into mid-2015.


This year-to-date, on an absolute basis, XLV has lost 2.77% in value, while SPY has lost 4.91%. XLV is 3.18% below its last 52-week closing high from 63 trading days ago. On a relative basis, XLV has outperformed SPY this year-to-date by 2.14%. From a long term-perspective, this ratio is in a downtrend. This is confirmed by the slope of our smoothed moving average. On a short-term basis, XLV has been outperforming SPY since November 2021. How long will XLV continue to show more strength than SPY? We should have a few more months as relative strength moves higher in its falling wedge with the momentum oscillator crossing above its average line and headed up to test its downward sloping trendline.


XLY / SPY

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Since relative strength broke above its prior resistance in middle of 2010, the horizontal blue line, it has remained in a relative uptrend for almost 12 years. Momentum has been weakening for the last 10 of those years, and the most recent swing highs are accompanied by a negative divergence with momentum.


This year-to-date, on an absolute basis, XLY has lost 9.51% in value, while SPY has lost 4.91%. XLY is 12.50% below its last 52-week closing high from 90 trading days ago. On a relative basis, XLV has underperformed spy by 4.60%. From a long term-perspective, this ratio is in an uptrend as relative strength continues to make higher-highs and higher-lows above its upward sloping blue trendline. On a short-term basis, XLY has been underperforming SPY since November 2021. Like XLK, this relative trend requires serious caution. We will know in the next few months if XLY is going to break below its upward sloping trendline, or if buyers will overwhelm sellers and continue this 12+ year relative uptrend.


XLF / SPY

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Relative to SPY, we see a down trend since the end of 2006, and a falling channel since the middle of 2009. We see relative strength starting from the March 2020 Covid low until relative strength met resistance in May of 2021 (dashed red arrow above horizontal yellow line).


This year-to-date, on an absolute basis, XLF has lost 1.87% in value, while SPY has lost 4.91%. XLF is 7.48% below its last 52-week closing high from 54 trading days ago. On a relative basis, XLF has outperformed SPY this year-to-date by 3.04%. From a long term-perspective, this ratio is in a downtrend. On a short-term basis, XLF has been outperforming SPY since March 2020, but turned down in May 2021. What might be next? Perhaps a bull flag. Since June 2021 we see green shading in the bottom panel showing us the smoothed 12-month moving average remains sloping upward. A measured move using the bull flag places relative strength above the yellow horizontal line which was prior resistance and just at the descending upper channel line of its almost 13-year falling channel. The bearish argument sees relative strength continuing down to test the bottom of its falling channel as shown with a thin blue line.


XLC / SPY

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XLC was relatively strong going into January 2020 before Covid hit. We had a signal in February 2020 that the smoothed 12-month moving average had turned up. Relative strength was strong and outperformed SPY from late 2019/early 2020 through August of 2021. From there, relative strength has violently fallen and has yet to bottom.


This year-to-date, on an absolute basis, XLC has lost 11.46% in value, while SPY has lost 4.91%. XLC is 20.07% below its last 52-week closing high from 146 trading days ago. On a relative basis, XLC has underperformed SPY this year-to-date by 6.55%. While the argument can be made that XLC is stretched from its moving average, roughly 16%, and a mean reverting bounce is due, we will have to see what the largest market participants have in store for the sector’s largest components Alphabet and Meta Platforms.


XLI / SPY

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The industrial sector as a whole has been choppy relative to SPY. The relative strength ratio was in a large rectangular range for more than 11 years from 2008 into 2019. Relative strength then broke down towards the end of 2019 and into 2020 Covid low. From there, relative strength bottomed in the early part of 2021 and then had a sharp run higher before turning down in May of 2021 at the red arrow. Now relative strength is at the bottom of a new consolidation range.


This year-to-date, on an absolute basis, XLI has lost 2.67% in value, while SPY has lost 4.91%. XLI is 3.86% below its last 52-week closing high from 93 trading days ago. On a relative basis, XLI has outperformed SPY this year-to-date by 2.24%. From a long-term perspective, XLI remains choppy when compared to SPY.


XLP / SPY

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Consumer Staples is interesting. At the start of the 21st century, XLP was underperforming SPY. XLP started to strongly outperform SPY as the Great Financial Crisis began at the end of 2007. 2010 to 2018 saw relative strength maintain a horizontal trading range until it started its current downtrend in mid- 2016.


This year-to-date, on an absolute basis, XLP has lost 1.58% in value, while SPY has lost 4.91%. XLP is 2.23% below its last 52-week closing high from 60 trading days ago. On a relative basis, XLP has outperformed SPY this year-to-date by 3.33%. From a long-term perspective XLP remains in a falling channel. We have seen a strong really in relative strength to start 2022. We also see a positive momentum divergence and the momentum oscillator line has broken above its average line and downward sloping trendline. This points to a possible retest of relative strength’s upper downward sloping channel line in blue and continued strength through 2022. To become somewhat more excited by this sector’s relative strength, I want to see a close above the March 2021 high marked by the horizontal orange line.


XLE / SPY

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The last secular peak in this ratio was June 2008. Since then, relative strength has been trending downwards for roughly 14 years. The bottom in this ratio was made in September 2020. We can see a Head & Shoulders Bottom. A measured move objective was achieved this quarter as shown by the small green rectangle.


This year-to-date, on an absolute basis, XLE has gained 37.73% in value, while SPY has lost 1.91%. XLE is 2.93% below its last 52-week closing high from 4 trading days ago. On a relative basis, XLE has outperformed SPY this year-to-date by 42.64%. From a long-term perspective, we can see relative strength breaking its downward sloping secular trend lines. If relative strength stays above these downward sloping secular trendlines in blue, then we have a case to make for a relative secular trend reversal.


XLRE / SPY

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XLRE has essentially been in a relative downtrend since its inception in late 2015. We can however see two major counter trend rallies, one of which we are currently in. This latest counter trend rally in relative strength began in December of 2021.


This year-to-date, on an absolute basis, XLRE has lost 6.74% in value, while SPY has lost 4.91%. XLRE is 6.74% below its last 52-week closing high from 62 trading days ago. On a relative basis, XLRE has underperformed SPY this year-to-date by 1.83%. From a longer-term perspective, until we see a break of its upward sloping blue trendline and a decline in momentum, the relative strength of XLRE is in an uptrend.


XLU / SPY

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XLU’s relative strength has been largely rangebound for most of its existence in between the two horizontal yellow lines. We saw a false breakout at the end of 2007 and relative strength was back in its range starting in 2010. The peak made in January 2009 was the start of the current falling channel that relative strength has been in now for almost 13 years.


This year-to-date, on an absolute basis, XLU has gained 4.02% in value, while SPY has lost 4.91%. XLU is 0.11% below its last 52-week closing high from just 1 trading day ago. On a relative basis, XLU has outperformed SPY this year-to-date by 8.93%. Since November 2021 we see a near vertical move in relative strength. Coupled with the momentum oscillator line crossing above its average line, perhaps we will see continued strength from XLU in the months ahead


XLB / SPY

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XLB has been in a relative downtrend since the middle of 2008. More recently we have seen a counter-trend rally in this relationship that started in March of 2020.


This year-to-date, on an absolute basis, XLB has lost 2.71% in value, while SPY has lost 4.91%. XLB is 2.71% below its last 52-week closing high from 62 trading days ago. On a relative basis, XLB has underperformed SPY this year-to-date by 2.19%. XLB’s relative strength is currently coiling, so we will watch for a resolution in either direction.


Conclusion

Market conditions have been shifting since Covid in 2020. From an extremely long secular perspective, only XLK and XLY are in uptrends. That said, from a strictly trend-following methodology, we have the 6-month moving average of the 12-month moving average currently rising on XLK, XLF, XLE, and XLRE. XLY does not, though remains above its upward sloping secular trendline.

This year to date however has been another story, and so we have to balance these long-term charts with what is happening in the present day. Year-to-date, we only have positive returns from XLE and XLU on an absolute basis, while on a relative basis we have outperformance from XLE, XLU, XLP, XLF, XLI, XLB, and XLV. The performance table below is sorted by the 1st quarter absolute price change

In summary:

  • XLK: long term uptrend. Has run into massive resistance. Relative strength continues to show a buy signal. Though underperformance is expected for several months, if not much longer pending a break below its last swing low in orange.

  • XLV: long tern downtrend. Currently in a counter trend rally.

  • XLY: long term uptrend. Declining momentum. We need to watch what happens here at its blue trendline.

  • XLF: long term down trend. Potential bull flag. Continues to flash a buy signal. Momentum almost positive. Potentially heading down before up.

  • XLC: 7-month crash. The future is unclear.

  • XLI: 2 year range below its previous 11 year range. Has potential to continue to show strength.

  • XLP: long term downtrend. 1.5 year bounce. Showing a positive momentum divergence, but that might have just played out as relative strength has just turned down from overhead resistance.

  • XLE: reversing long term down trend. H/S completed and still going. 1.5 year bounce. Remains showing a buy signal.

  • XLRE: long term down trend. 1.5 year counter-trend rally. Remains on a buy signal.

  • XLU: long term downtrend. 5+ month vertical counter-trend rally.

  • XLB: long term downtrend. 2+ year counter-trend rally and now a coil. We are watching for a resolution.

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