Sector Drill Down

After looking at the broad picture last week, I wanted to take the next step and drill down to the sector world and see where the participation is really flowing at this point; so I will go through the weekly sector breakdown we perform at RCA.  The markets did just finish a very strong week to start June, therefore, keep in mind that entries might not be immediate for many styles, but monitoring participation as they set up again is worth our effort why this is a major part of our process.

Sector Breadth

Advance Decline Line Sector Dashboard

We start the review with the Advance Decline Line of each sector.

It should be no surprise to anyone that Technology is leading and already in new high territory.  Once again, it was not just the few mega caps always discussed moving the Technology sector since the lows, but that was the narrative we kept hearing.  Health Care also came very strong off the lows, but has been sideways the last few weeks.  This is one to watch as the price charts are bunched up right below their highs as well.  A new leg higher in the markets likely breaks this out and could get a big move.  Those are the leaders but where have the recent moves come from?  The sharpest move higher in recent weeks comes from the Consumer Discretionary sector as things begin to open back up with pent up spending the expectation.  Right behind were the sharp moves in Basic Materials and Industrials.   Financials, Real Estate and Utilities never really took that much of a hit relatively and while they have lagged until the last week or so, their lines are pretty near new highs.  Rotation may favor these sectors if the markets keep moving in the near term, but doesn’t mean leading sectors should be ignored.

(At bottom, I have posted the Industry AdvDec Lines for review)


Moving Average Breadth Sector Dashboard

Other than the sheer strength in the lower two measures, there are only a few things to note here.  Remember we have noted multiple times that the shorter term measures will be less important in this instance due to the velocity of the moves and the slope of those averages.  That said, the first point here is the one sector not pegged in the shorter term measures is Health Care which hasn’t really participated the last couple of weeks, but overall a large number of the holdings are already above the 200 sma which keeps it in a leader seat.  Most of our focus here goes on the %>200sma measures which show us which sectors are making more significant longer term headway.  Technology leads again here with Health Care and Consumer Staples filling out the next two spots.  The Sectors improving the fastest right now are Basic Materials followed by Industrials and then Consumer Discretionary.  A little different order, but same areas improved most last week.  Utilities and Real Estate are lagging more here as more constituents remain below that longer average.  Energy also needs a mention as it is still lagging in both of these first two measures when we look longer term giving it the most opportunity to fail early if the markets begin to lose steam.


McClellan Sector Dashboard

McClellan is showing the Summations are all moving pretty well, but here you can see some separation since this started. 

Financials, Industrials, Real Estate, Energy and Utilities are all just moving above zero and have room to move if they can get the Oscillator to cool off without falling out.  Health Care is looking for a kiss on the Summation as the Oscillator is not at extremes and could get back in gear.  This does however also leave open the door to a Summation cross down that would be a potentially important failure in the sector. 

All these remain fluid, but do show incremental improvement and strong breadth across most sectors overall.  Keeping up with the sector breadth can help no matter what your trading style is.  It is integral for us to see early which areas are strongest and weakest as well as which ones got attention first and which are getting it now.

Relative Strength

Now that we see the breadth picture is strong and supports the moves we are seeing, we move to the relative strength review which starts with our 3 sector proxy lists.

I use Vanguard sector funds as the Cap Weighted Sector list.  Here you can see Technology not only gave up the top spot, but dropped all the way down to sixth.

Cap Weighted Sector ETF RS Rankings

I can’t tell you the last time I saw Energy leading this list even when it did rally, but here we are in 2020 where anything can happen.  The RS movers column has Energy on top as well with a 60 point move this week, but Industrials and Financials are what jump out to me right here.


Next we look at the Equal Weight Sector list which is pretty similar to the cap weighted list at this moment.


Equal Weighted Sector ETF RS Rankings

On this level the only two that swapped places are Technology and Basic Materials, but otherwise similar.  It is notable that Health Care has come off on these after a strong run.  I note this because strong sectors losing relative strength can be be a sign of digestion as opposed to a rollover.  If breadth is soft short term, strong longer term and RS is lagging then we move to the charts and see a long tight consolidation just under the highs.  If it can hold the chart pattern there is a good chance it is setting up the next move higher.  My RS being a 3 month calculation, it tends to help spot the resting strength.


Finally we look down to the Small Cap Sector list where we can see some real differentiation.  Here is where a lot of the rotation seems to be happening.

Small Cap Sector ETF RS Rankings

By far, the most notable thing here is seeing small cap Technology at the bottom with small cap Health Care just behind it.  These strong sectors are not participating as small caps play some catch up.  While Energy leads here too, if I am looking at small caps for an intermediate move, I would be looking at Financials and Industrials.  Maybe Basic Materials, but that is always a tough sector to hold too long.


ETF RS Rankings by Sector

Now that we have an idea of where things are flowing in the sector world, let’s dive into each sector list and see what is going on.  Here I am going to post them based on their ranking in the cap weighted proxy list.

Have to start with Energy as it tops the list.  Here Natural Gas has been a leader for weeks and doesn’t look to be changing yet.  Small Cap Energy has made a big move this week up the ranks, but would like to see it hold another week before getting too excited. 

Energy Sector ETF RS Rankings

Now I draw attention to the previous leaders TAN FAN and ICLN which have moved to the bottom of the list recently, but are still performing pretty well, just not surging as Energy gets a breath (I also want to note those 100+ readings which aren’t part of my calculations.  For some reason Excel likes to do this with my calculation once in a while.  It is an error, but both of these were leading and in the high 90s back at this date).  If I were looking here for short term, I would concentrate on the small caps.  If looking longer term, might concentrate on the larger more diversified and or stable names.  I actually like the idea of equal weighted here to combine both ideas.


Consumer Discretionary is next being lead for a while by IBUY internet commerce ETF, but this week was eclipsed by the small cap ETF PSCD for the sector.  Homebuilders ITB XHB have done well off the lows and showed consistent RS throughout most of this mess.

Consumer Discretionary Sector ETF RS Rankings

Previous leaders pulling back in RS are the gaming plays NERD ESPO GAMR which should be watched closely if Tech catches a bid here soon.  XRT and CARZ are two other movers here that may be worth a look.


Industrials have moved up well recently on all the sector lists and in the breadth readings.  This week the airline ETF JETS seemed to be all the talk moving up to the top spot after being at the bottom of the list since all this started.  After that, the small caps shot up the list as well during the week. 

Industrials Sector ETF RS Rankings

ITA is another notable mover this week after camping near the bottom in recent months.  Water on the other hand lost its RS and not on my list to rebound strong so far.


Basic Materials has also moved up the RS ranking recently, a good bit on the back of Precious Metals, but other groups seem to be getting involved in this last move while those cool off.


Basic Materials Sector ETF RS Rankings

This is another sector I like to look at the equal weighted plays right here as things are broadening out from just focusing on Precious Metals.  Steel made a strong run to the top this week, but many of the broad plays also hit the movers list.  Building materials PKB have been pretty consistently strong moving with the home builders we noted in Consumer Discretionary.  As mentioned gold, silver and its counterparts took a break as the markets firmed up and moved above some major milestones.


Financials have also made a strong move this week out of the laggards group.  Many have been harping the markets can’t go without financials, which I think is completely false with them only representing a 13% weight in the indexes; but am also fine with them participating here.


Financials Sector ETF RS Rankings

Regional banks were the big winners here after a long and ugly period that started well before the crisis hit.  These charts still don’t look great longer term, but are making strong moves out of bases and now adding to some confidence in these markets.  This sector had been lead by Brokers and private equity type financials which are taking a back seat as the banks wake up.  Not sure if this juxtaposition will last a while or not, so I will continue to monitor it closely.  I still prefer the brokers and IAI longer term.


Technology finally shows up on the list after being the leader most of this move off the lows.  That is not necessarily a bad thing if these names are just consolidating.  Many of the largest names look to be in sideways moves that are up to a month old and now, as of Friday, are either breaking higher or pressing up against the top of their respective ranges.


Technology Sector ETF RS Rankings

This leader has a lot of major components that have been resting, so it will be high on my list here to see how it acts this week.  It has not been hard to spot the leadership in Software early and then Internet, but other smaller themes have emerged out of these as well.  Autonomous technology ARKQ has come on strong with the TSLA fame as well as other players in the space.  Mobile Payments IPAY have also seen a good solid move through this pandemic.  The big relative strength move this week showed up most in Semiconductors that look to be taking the reins of Technology in recent weeks and have room to run if they like.


Real Estate comes in next in our list.  This one is surprising many as retail real estate continues to rebound strong.



Real Estate Sector ETF RS Rankings

Residential and Retail REITS have been getting attention here in recent weeks along with small cap real estate which is concentrated more in the residential as well.  Overall not expecting strong moves here, but can still be a yield play if these firms can hold on to those dividends.


Health Care comes in near the bottom of the list this week; but as I mentioned, it is still a leader I am paying close attention to see if it can break out here.  If so I would expect a quick move back higher in RS for the sector, but while we are waiting let’s see what is going on inside.




Health Care Sector ETF RS Rankings

Health Care Services were big movers this week.  XHS is the equal weight ETF there and IHF is another.  Note the equal weighted on top suggest the smaller players are getting the most out of this move to leadership within the sector.  Another favorite of mine here moving back near the top is PAWZ after taking a break over the last month.  This is a hot space and one I am excited about longer term, so this resurgence might be a good spot to engage.  I am also still pretty high on Biotech XBI IBB and think this recent rest is a good thing for the sector.


Utilities are playing kaboose right now as they have fallen back to the bottom spot this week.  Not a bad absolute price move, but relatively this is lagging here again.  Another Macro view tell we will keep an eye on.




Utilities Sector ETF RS Rankings

It is worth noting in this one that PSCU the small cap ETF is the clear leader here in price action since the lows.  NEE is a favorite, but it looks here like the little lesser known players have been the ones to focus on.


GT Select Sector ETF List

Now that we have gone sector by sector to see what is moving within each, let’s move back up the scale and look at the GT Select Sector (119 Sector ETFs) ranked against each other and pull out the top and bottom 25 rankings.  This is not the only way I use the list.  I will also look at the movers here both positive and negative no matter where they fall in the list, but today we will stick with the top and bottom.

The GT Select Top 25 show some of the usual suspects like IBUY ITB PKB which have been fairly consistent leaders through this move, but many others that we are not used to seeing up here near the top.

GT Select Sector ETF RS Rankings Top 25

Of course, Energy plays stand out, but not many had FCG on top (I know a few that did expect this, but not many).  JETS is another one we aren’t used to seeing.  These have been great short term plays and may continue, but make sure you know what you are getting if looking at these (or any for that matter) for new money after a strong move.  However, since my calculation is so short term, many of these could be early if they do build the structure for a longer term move.


The GT Select Bottom 25 list looks to have a lot of the leaders pulling back in recent weeks, but still some that are worth exploring the charts closer to make sure there isn’t still some longer term strength and structure in their favor. 


GT Select Sector ETF RS Rankings Bottom 25

Health Care space across the board fit this better than most, but I noted IHF and IHI here with IBB always on the radar.  TAN is another I like as it has lost RS, but absolute price action remains solid here on the chart.

This should give you plenty to chew on throughout the week, but hopefully it also gives an idea of how one can participate in these markets without taking the individual risks each company presents.  And, if you prefer those individual names, you can drill down further from here once you see which industries and themes are in focus.  Also remember, with the shorter calculation I use, it can be earlier in the moves than other RS measures you may be used to.  As mentioned earlier in the post, below the disclaimer, you can continue to scroll down and see all of the Advance Decline Line for each of the industries in my universe.

Good luck and as always I hope this helps!

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