S&P500 Sectors Snapshot

S&P500 Outlook and Sector Snapshot Update

12 October 2020

S&P-500 Correction is over, next target 3710

The S&P-500 index saw a corrective dip off the 2 September peak at 3588. The three week correction phase saw the market retrace 62% of the prior 2966-3588 (15 June - 1 September) rally to establish a base at 3209 (24 September). Since then the market has climbed back above its quarterly and monthly averages, suggesting bulls are poised to regain the 3588 peak to test the projected channel resistance near 3710 by the 3 November presidential election.

Now that we see scope for a further advance, the question is, which sectors should you be betting on to outperform the broader market. Below we examine some of the sectors that are outperforming the broader market.

S&P500 Utilities Sector

S&P500 Utilities Sector Index Relative to S&P500 Index (Ratio)

S&P500 Utilities Sector Index

In the relative terms, the Utilities sector has been underperforming the broader market for a long time. Utilities sector is known to outshine during bear markets. And therefore, this should not come as a surprise that the previous two peaks on the ratio charts were seen during the 2001 and 2009 stock market crashes. While currently we are in a bull market, it is noteworthy that the current rise in the utilities sector may be a hint that some investors have started to move into this sector citing uncertain times ahead.

Nevertheless, the recent triangle breakout on the Utilities Sector index underscores scope for a further rise. Furthermore, the yearly average, which had been serving as a solid resistance in the recent months, has been clearly broken. This paves the way for the current rally to extend towards the pre-Covid peak near 360, initially, then possibly an extension beyond. The former triangle resistance and the yearly moving average now serve as support near 310.

S&P500 Information Technology Sector

S&P500 Information Technology Sector Index Relative to S&P500 Index (Ratio)

S&P500 Information Technology Sector Index

On the relative performance charts the S&P500 Information Technology Sector remains close to the bull channel support and the key quarterly moving average. Although the ratio has started to show some signs of exhaustion, technically it remains bullish while above the key support area.

Nonetheless, on the absolute performance charts the structure remains firm. The quarterly average band continues to offer solid support while bulls aim for the 2240 peak and then the projected channel resistance near 2335.

S&P500 Consumer Discretionary Sector

S&P500 Consumer Discretionary Sector Index Relative to S&P500 Index (Ratio)

S&P500 Consumer Discretionary Sector Index

While it might be thanks to a handful stocks such as Amazon, there is no doubt that the Consumer Discretionary Sector has been a consistant outperformer. It is noteworthy that this sector has been relatively less volatile compared to other sectors in terms of it's performance relative and in absolute terms. Look for the current rally to test the channel resistance circa 1370, possibly higher, before we see some exhaustion and a possible corrective pullback.

This analysis is a very simple and brief overview. For more in depth and actionable analysis please contact me.

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