Key points:
- Health care, energy, and financials retained the top three rankings among sectors
- Technology’s ranking improved from 7 to 4, led by software stocks
- Systems software jumped to 6th in the rankings among sub-industry groups
Leadership remains steady
Last week ended with a bang, as Kevin Warsh’s Jackson Hole speech sent interest rates and the U.S. dollar higher, while rate-sensitive equities and precious metals came under pressure. Despite Friday’s volatility, relatively little changed from a leadership perspective over the week. Health care, energy, and financials retained the top three spots in the S&P 1500 rankings.
Technology posted the biggest improvement, jumping three spots from seventh to fourth. However, software stocks were a key driver of the move, with the equal-weighted SPDR Software & Services ETF (XSW) breaking out to a new all-time high while maintaining bullish short- and long-term Dual Trend signals, suggesting the strength extends beyond a handful of mega-cap issues.
As the table above shows, CVR Energy ranks as the top energy stock in the S&P 1500. A closer look at the company revealed an interesting twist: CVR is not only a petroleum refiner but also a producer of nitrogen fertilizer. That combination is particularly compelling given the bullish backdrop for energy and the favorable agriculture setup highlighted last week. In other words, it offers exposure to two themes in a single stock.
Systems software and application software entered the top 30 sub-industry groups in the latest Dual Trend rankings, placing 6th and 19th, respectively—a noteworthy shift. Even more encouraging, 14 of the 17 stocks in systems software carry bullish short- and long-term Dual Trend signals, pointing to broad-based strength across the group.
The communication services sector posted the highest percentage of stocks at 2-month relative highs over the past week, with technology and energy ranking second.
Application Software and Systems Software ranked first and third, respectively, among the sub-industry groups with the most stocks hitting 2-month relative highs over the last week.
Despite the pullback in stocks to end the week, breakouts across multiple time frames showed a clear cyclical bias, led by technology.
As with the relative-high breakout list, software stocks dominated the share of sub-industries reaching new absolute highs. Human resources & employment, a group highlighted in previous reports, continues to show favorable technical momentum, as does financial exchanges & data, which I highlighted last week.
Software stocks occupy 10 of the top 50 spots in the S&P 1500 rankings, with most of the remaining names concentrated in the leading groups, health care, energy, and financials. A few idiosyncratic names also stand out, including SharkNinja and DoorDash, both of which I’ve highlighted previously.
DoorDash (DASH) continues to grind higher in an environment where breakouts have generally struggled to extend to the upside. That’s typically a constructive sign, and DASH is a name worth watching should a year-end rally develop.
Application software stages a comeback
With software jumping in the rankings, it’s worth revisiting a chart shared several times during the SaaS Apocalypse drawdown, which culminated in one of the most severe relative oversold conditions on record for application software. The group’s 126-day rate of change now stands at 9%, but as the chart indicates, there is still room for further upside, as seen following other periods of severe underperformance.
What the research tells us…
The leadership picture remains remarkably consistent, with health care, energy, and financials holding the top spots in the trend rankings. One notable change is the improving tone within technology, particularly software. A group that was essentially left for dead following the SaaS Apocalypse now appears to be turning the corner, with technical strength broadening and the potential for further gains. When the broader market is treading water, patience becomes especially valuable. Focus on identifying where relative strength is quietly emerging, as those areas often lead when the market’s next sustained advance begins.
