S&P 500 Sector-Level Trends
Sector-level trends have bounced back quickly after seeing some weakness post-Brexit. Broad and expanding sector-level strength echoes other breadth indicators and could continue to provide support for the S&P 500.
Russell 2000 Index
While improving trends from small-caps and Broker/Dealers may not be necessary for the S&P 500 to break out to the upside, evidence of improvement would increase the likelihood that such a break out is imminent. In fact, quietly improving trends here, while the S&P 500 continues to consolidate, could set up a favorable back-drop for a rally into year-end (especially if we see a reduction in the Fed’s oft-mentioned “uncertainty”).
While the S&P 500 has been in a trading range for 18 months, the small-cap Russell 2000 Index (INDEXRUSSELL:RUT) moved lower on an absolute and relative basis for much of 2015, and has spent much of 2016 trying to get back in gear.
Broker/Dealer Index
The weakness that emerged in the Broker/Dealer Index (INDEXNYSEGIS:XBD) in mid-2015 has persisted in 2016. While it remains above its absolute price low from February, the relative price trend has been unable to make any headway. A reversal in this relative weakness would be a bullish indicator for the market overall, as this group tends to lead the S&P 500.
S&P 500 Health Care Sector
The Health Care sector (NYSEARCA:XLV) is challenging the relative price down-trend that emerged in mid-2015. On an absolue basis, the sector is challenging its late-2015 highs. Breadth trends have remained favorable, with the strength seen in recent years re-emerging this year. We are starting to see some improvement in the sector in our relative strength work, both at the sector level and also among the various industry groups. If this persists, a return to the leadership group could be forthcoming.
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Twitter: @WillieDelwiche
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
