Technology Sector Likely To Continue To Lead

Below, we see the relative rankings of the S&P sectors in chart 1. The technology sector moved up two ranks several weeks ago. This type of climb in the rankings has been bullish in the past. As we can see, tech (chart 2 below) has risen back to the number one spot this week from third place. Energy (chart 3) has fallen out of first place for the first time in a year.

Markets dislike dispersion, a great difference between leading stocks and the weakest stocks. This can be measured by the difference between the top-ranked sector RSV and the lowest-ranked sector. There was the widest spread between the number one-ranked energy sector and the lowest-ranked sector, about 60 points, in 2022. The difference between the top and bottom ranked sectors has fallen to a differential of 11 RSV points, a much healthier sign for the overall market.

RSV of Sectors

In the last week, the technology sector has again risen by two relative ranks. When tech has jumped by two ranks in the past, it has been higher twice as often as it has been lower over the next four weeks. Energy dropped by one rank. When energy has dropped by one rank, the odds that this index closes higher over the next four weeks is 60%.

The conclusion is that tech will maintain its hold on first place, but energy will not necessarily fall any further in the relative rankings.

The fourth graph is that of the XLEXLE
/XLKXLK
. It shows that the rally in energy in the last year has not negated energy’s 14-year downtrend versus technology. This, too, confirms that technology will outperform.

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XLE Daily

Energy Sector/Technology Sector Relative Strength