It has been another rough week for stock markets as the headwinds from a struggling world economy, high inflation and the prospect of more monetary tightening continued to increase, especially with the US 10-year treasury note yield climbing up above 3.00%.
The bottom fell out from under many major indices in North America and around the world as equities sold off and indices staged major pattern breakdowns. The last day or so has see markets attempt to regain their footing but it still appears that for the most part investors appear to be more interested in “selling the rally” than “buying the dip”. Significant declines in risk markets like small caps, emerging markets and cryptocurrencies while the US Dollar has rallied suggest that investors remain cautious and that capital continues to rotate from aggressive to defensive stances.
Although all 31 industry groups that SIA Charts tracks fell back over the last week, there have still been significant differences in performance with Energy and defensive sectors like Utilities, Food and Beverages falling less than 5%, while Retail, Metals & Mining, Internet and Computer Software declined more than 10%, highlighting the importance of relative strength analysis in the context of larger market moves.
In the coming week, inflation numbers for the US and Canada remain at the top of the agenda including consumer prices, producer prices and house prices. The retailing sector may also attract attention with US retail sales due on Tuesday and several senior US retailers reporting Tuesday and Wednesday headlined by Walmart and Home Depot.
In this issue of Equity Leaders Weekly, we look at the relative performance of the Consumer Staples sector compared with Consumer Discretionary and take our monthly look at Sector Scopes.
On the left-hand side of the SIA Dashboard, below the Asset Class rankings, you will find a number of pre-selected comparison charts including commodities, indices and sectors that provide insights into relative strength, investor confidence/sentiment, and capital flows. For each comparison you are able to look at each component’s Point and Figure chart, their SMAX score, plus you can click through to a Point and Figure or line comparison charts. The relative performance of Consumer Staples, a defensive sector, and Consumer Discretionary, a cyclical sector, can provide insight into how confident or cautious investors are at different points in time.From the March 2020 market bottom through to December of 2021, Consumer Discretionary outperformed, but a point and figure chart shows that this trend has turned in favor of Consumer Staples since the start of this year with the XLP/XLY ratio recently snapping out of a downtrend and staging a bullish Double Top breakout. The line comparison chart year to date shows us what is driving this change in the ratio comparison. So far this year, Consumer Staples (XLP), as a defensive sector, have been holding steady, were up on the year recently, and year to date are currently down about 2%. In comparison, with capital leaving cyclical sectors, Consumer Discretionary, on the other hand, has been getting crushed, recently down over 25% year to date.
The Sector Scopes feature in SIA Charts, found in the Markets – BPI section, provides investors with a snapshot of the bullish percent (percentage of stocks in a group on a bullish charting signal) for 31 industry groups. This provides us not only with a indication of market sentiment at a point in time, but also a visual way to evaluate changes in attitudes and capital flows between groups over time.A month ago, the sectors were pretty evenly distributed across the spectrum. Recent selling has seen most sectors shift far to the left, piling up in the leftmost column, indicative of a downward trending, perhaps getting oversold marketplace. The sectors which showed the biggest dropoff in bullish percent included Metals & Mining, and Real Estate. Sectors which held up the best in terms of bullish percent were Energy, Food & Beverages, and Utilities.
Disclaimer: SIACharts Inc. specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment whatsoever. This information has been prepared without regard to any particular investors investment objectives, financial situation, and needs. None of the information contained in this document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. As such, advisors and their clients should not act on any recommendation (express or implied) or information in this report without obtaining specific advice in relation to their accounts and should not rely on information herein as the primary basis for their investment decisions. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. SIACharts Inc. nor its third party content providers make any representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein and shall not be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon. Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice.