A Sector-by-Sector Look at the Stock Market

by JC Parets  -  April 29, 2019

A doctor would never diagnose a patient without first seeing what’s going on inside. A mechanic won’t be able to tell you what’s wrong with your car without lifting the hood.

It’s no different in the market. How can we possibly judge the S&P 500 Index without opening it up first to see what’s happening among its components?

Today, we’re going to focus on the sectors themselves. We’re looking at weekly candlestick charts for the 11 major sectors:

  • Technology
  • Real Estate
  • Energy
  • Healthcare
  • Financials
  • Consumer Discretionary
  • Consumer Staples
  • Utilities
  • Industrials
  • Materials
  • Communication Services

How many sectors are making new highs? How many are making new lows? Are more of them starting to trend higher or are more of them starting to trend lower. In which direction are consolidations resolving, higher or lower?

Ladies and gentlemen, this is great data that we then use to identify the direction of the major indexes like the S&P 500 and the Dow Jones Industrial Average.

While I think it’s important to analyze the indexes themselves, I find it much more rewarding to break it down to the sector level… and then ultimately to the stocks themselves. It’s a market of stocks, after all.

There are multiple layers to the top-down approach, and today we’re focused on the sector groups.

I think the common denominator right now is that many of them are, or have been, range-bound. The sectors that have resolved their ranges have done so higher. That’s certainly worth noting.

But, first, let’s look at the ones that are clearly in the midst of consolidations.

The Industrials group is running into the downtrend line from former highs, where demand has yet to absorb that overhead supply:

Intermediate-term candlestick chart of the Industrial Select Sector SPDR Fund.

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We’re seeing pretty much the same thing in Materials:

Intermediate-term candlestick chart of the Materials Select Sector SPDR Fund.

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It’s there in in Financials as well:

Intermediate-term candlestick chart of the Financial Select Sector SPDR Fund.

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Consumer Staples is in a similar situation, but it’s already flirting with breaking out higher from that range:

Intermediate-term candlestick chart of the Consumer Staples Select Sector SPDR Fund.

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Some of them are already breaking out. Look at Consumer Discretionary exceeding last year’s highs:

Intermediate-term candlestick chart of the Consumer Discretionary Select Sector SPDR Fund.

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Real Estate is, too:

Intermediate-term candlestick chart of the Real Estate Select Sector SPDR Fund.

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Utilities have also broken out to new highs:

Intermediate-term candlestick chart of the Utilities Select Sector SPDR Fund.

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And of course, Technology is also making new highs. That’s what it does:

Intermediate-term candlestick chart of the Technology Select Sector SPDR Fund.

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Communication Services hasn’t quite broken out above former highs, but it certainly appears to be approaching those levels:

Intermediate-term candlestick chart of the Communication Services Select Sector SPDR Fund.

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Health Care is right in the middle of its range, despite the recent selling:

Intermediate-term candlestick chart of the Health Care Select Sector SPDR Fund.

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And Energy is within a range, showing no particular trend in place:

Intermediate-term candlestick chart of the Energy Select Sector SPDR Fund.

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I’ve shown you the best, and I’ve shown you the worst. How are you feeling?

Was there more “good” than “bad”? Are more of them going up versus going down? How many are making new highs versus making new lows?

These are weekly candlestick charts going back three to four years. These aren’t “long-term charts.” But they’re not too “short-term,” either.

I think they provide us with a certain sweet spot of that intermediate-term time horizon where we’re trying to identify trends to make money this month or this quarter. I think these weekly charts helps us approach the market from a much more informed position.

If you’re a longer-term investor, this will give you a more tactical look at what’s happening in the market. If you’re an intermediate-term investor working on your P&L statement for the year, this is an important timeframe.

And, if you’re a short-term trader, these become your “long-term” charts so more near-term trades can fall within the context of longer-term trends and increase the probabilities of success.

With very few exceptions, this group of 11 charts can help a wide range of market participants in a variety of ways.

I see stocks resolving higher. More of them are going up versus down. I see sideways trends and uptrends. So, do we want to be buying stocks, or do we want to be selling them?

I want to be looking for stocks to buy.

How do you guys see it?

To wise investing,

J.C. Parets
Editor, Big Market Trends