Key Takeaways
  • Rally now has reached early March highs and the aforementioned 4416 area in SPX. Friday could be important given the Triple witching expiration and heavy volume.
  • Utilities should outperform further given the group’s potential new all-time high weekly close.
  • Regional Banks look like the best part of Financials for those inclined to play this space.
Utilities pushing back to new all-time highs
Utilities pushing back to new all-time highs

SPX’s gains have now extended for the third consecutive day, which hasn’t been achieved since late January. Two-month SPX downtrends from early January are being tested, while momentum based on daily MACD has turned back to positive. Does this mean the lows are in? Unfortunately, without weekly momentum starting to stabilize nor trends being broken, it’s still difficult to weigh in positively on this bounce. Groups like Utilities and REITS are making breakouts on absolute and relative basis, while Technology is trying desperately to stabilize after its recent trend violation. The next week should speak volumes about where prices can go, but near-term, it looks right to consider commodity-based themes like Energy and Metals along with favoring defensive groups given that US Equity trends remain under pressure.

Utilities pushing back to new all-time highs
Source: Trading View

Utilities outperformance should continue after breakout

The defensive areas of the market remain attractive, despite SPX attempting to carve out a trading low. The XLU is second to only Financials for month-to-date performance and both are higher by more than 7.5% for the last month, outpacing all other nine sectors.

Technically, this week could prove to be a new all-time weekly high close for RYU, the Invesco Equal-weighted Utilities index, which would occur on its ability to remain above $114.80 by Friday 3/18/22’s close.

As seen below, this week’s close looks to be just getting above highs made back in February 2020 which is a very bullish development given the extent of the rally in the last couple years. The last six months of trading has occurred within striking distance of all-time highs, but this breakout is happening this week. Overall, from an absolute perspective, this is quite attractive and should help this group strengthen even more in the short run.

Relatively speaking, Utilities has been outperforming meaningfully over the last month compared to SPX, and is not only the second best sector for the last month, but the second best sector of 2022, albeit meaningfully behind Energy.

Utilities like CMS -4.78% , DTE, ATO -2.99% , SRE -4.06% , FE -4.62% , XEL -3.83% , NI -6.08% are some of the more attractive names in this entire space technically and should be overweighted.

Utilities pushing back to new all-time highs
Source: Optuma

Financials have faltered despite this week’s strength. Can this group regain its “Mojo” if yields turn lower?

Interestingly enough, despite some stellar rally this past week out of the Financials, this group has seemingly begun to stall out when looking back further over the last month. Relative charts show Invesco’s Equal-weighted Financials ETF ( RYF) vs SPX in ratio form having found strong resistance near last Spring’s highs. Additionally, the group just broke down in mid-February from more than a two-month relative uptrend.

Some of this underperformance happened as yields turned down in mid-February, but if the weekly cycle projections of Yields rolling over from April-September materializes than one would suspect this group might be under some further pressure. Some of the recent weakness does look to have directly coincided with the Russian invasion and banks like JPM, BAC, C along with Investment banks like MS and GS, weakened technically. Thus, either a continued Russian/Ukraine war, or evidence of rates pulling back would be cause for concern for Financials, which is a concern for the broader market as this is the 3rd largest group within SPX, just fractionally behind Healthcare.

This group should be watched in the weeks ahead, both on an absolute and relative basis, for evidence of either breaking back out, or rolling over, but my bias is for Financials underperformance in the months ahead.

Utilities pushing back to new all-time highs
Source: Optuma

Regionals still look to be the top choice when looking at Financials. For those involved in Financials, however, there does look to be a relative bright spot to consider, which has been previously discussed. When looking at ratio charts of the Regional Banks vs. broader Banking space in relative terms, KRE -2.32% vs KBE -2.17% , Regional banks have just pushed back to new yearly highs vs KBE in recent weeks and have begun to accelerate. Thus, while the Russian invasion has led many of the US Money Center banks and Investment banks to turn back lower, the regionals along with Insurance have continued to strengthen. My favorite technical stocks of the Regional Banking space are FITB, CMA, KEY TFC along with Northeastern Bank standouts like PBCT, FULT, and SBNY which remains one of the best areas of strength within the Regional Banks.

Utilities pushing back to new all-time highs
Source: Optuma

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