Key points:
- Financials, health care, and technology retained the top three sector rankings
- Energy climbed from 10th to 5th in the stock rankings over the last week
- A thrust signal emerged in energy, suggesting the sector may have further upside ahead
Bullish evidence for the energy sector emerges
Financials, health care, and technology maintained the top three spots in our proprietary bottom-up ranking of S&P 1500 stocks.
The most notable development over the past week, however, was the sharp rise in energy, which jumped from 10th to 5th, signaling a meaningful improvement in underlying trend and relative strength.
Consistent with the leadership typically seen during broad market advances, defensive groups remain clustered near the bottom of the rankings, alongside consumer discretionary, which has remained a laggard as several factors weigh on consumer spending.
Across our sub-industry rankings, life sciences tools & services moved into the top spot, followed by oil & gas refining & marketing. Notably, both groups have many stocks carrying bullish signals on both the short- and long-term Dual Trend systems.
For the second week in a row, technology led all sectors in the percentage of stocks making new two-month relative highs. While health care’s strong showing is not surprising, the sharp increase in relative breakouts across energy is notable.
Technology and health care sub-industry groups account for much of the leadership in the two-month relative high rankings, while several energy groups have emerged in the top 30.
Energy led all sectors in the percentage of stocks registering new 21-, 63-, and 252-day highs to close out last week.
Within the sub-industries, 7 of 14 oil and gas equipment & services stocks registered a 21-day high, ranking among the strongest showings for groups with at least 10 issues.
While health care continues to dominate the top 50 S&P 1500 rankings, several oil and gas refining and marketing stocks, along with a handful of oil and gas equipment and services stocks, also made the list.
Within the energy sector, the following stocks maintain bullish signals on both the short- and long-term Dual Trend systems.
Bullish follow-through
The following list includes S&P 1500 stocks that have shifted to a bullish short-term status over the past 10 sessions and have performed best relative to the S&P 500. Tidewater, an oil & gas equipment and services stock, has seen exceptionally strong near-term upside follow-through, a favorable development.
The percentage of energy sub-industry groups on a short-term Dual Trend buy signal rose to 71% on Friday, with five of seven groups showing bullish absolute and relative trend profiles. For reference, exploration and production and refining and marketing remain bearish.
When the percentage of energy sub-industries on a short-term Dual Trend buy signal cycles from below 20% to above 60% after at least a three-month low in the energy sector, the group has tended to see further gains, generally exceeding its historical baseline.
What the research tells us…
Healthcare and financials remain the top two sectors in our bottom-up stock ranking, while technology holds the third spot and showed further improvement over the past week. The standout development, however, was the resurgence in energy, which strengthened across several short-term technical indicators and triggered a breadth thrust signal. While the sector’s overall technical profile has not yet turned overwhelmingly bullish, the improvement suggests energy warrants a position in portfolios.
