We put a lot of emphasis on a top-down approach here at Grindstone. Yes, there’s tremendous value to be had in a bottom-up technical approach, too, which is why we sift through thousands of charts of individual stocks each month. When we’re just checking the charts of individual stocks, though, we can miss out on big themes in the market – especially if we aren’t in tune with the fundamental factors that drive each of those individual stocks.
Zooming out helps.
If you’re a regular reader of our work, you’ve probably noticed that our process centers around the 11 GICS sectors. When we take groups of similar companies together, we can better identify the types of companies that are working best, and that can help us identify sustainable trends. And once we’re in the right zip-code, then we can spend our time deciding which companies within that zip-code we want to own.
Today, we’re going a step deeper to the “Industry” level of the GICS classification system.
Over the last few weeks, we’ve seen a shift in the US equity markets. New leaders are emerging, and a few former stars have dropped to the back of the pack.
Media stands out at the top of the list. It just broke out to new 52-week highs after coming out of an 18-month, 50% drawdown.
What really catches our eye is how Media is attempting to reverse this downtrend on a relative basis, too. If we want to outperform the market, we need to own the stuff that’s outperforming the market. And if this ratio is above the January highs, we need to be taking this industry seriously.
Energy Equipment & Services is another standout. It’s setting new 52-week highs of its own after completing a cup-and-handle continuation pattern.
Construction & Engineering rose over the last 4 weeks, bucking declines in the overall market. That won’t come as much surprise to anyone who’s been keeping an eye on the industry – it’s been showing unparalleled relative strength for the last 3 years.
Down at the bottom of the list, we don’t want any part of the relative weakness we’re seeing within Independent Power and Renewable Electricity Producers. They just broke down at their lowest levels since 2020.
Passenger airlines, though, are worth keeping a close eye on, even if they’re near the bottom of the 4-week performance derby. Price is still above a rising 200-day average, in a regime of new 3-month highs, and has so-far managed to stay out of oversold territory during the course of this selloff. Those are all characteristics of an ongoing uptrend.
It’s too soon to give up on Automobiles, either.
They’ve fallen 16.7% over the last 4 weeks, but they’re still one of the top performing industries year-to-date. That recent decline has brought us right back to a key rotational level.
How the autos respond to this potential area of support will tell us quite a bit about investors’ appetite for risk during a tough month for stocks.