Price Action & Performance
XLC triggered a tactical sell signal in mid-July but has bounced back quickly and ends the month in a bullish position. We are interpreting the recent oversold condition on the RSI as a reset and note the MACD is rolling over positively near the zero line which is a bullish tactical setup for the new month. Market internals were mildly positive with 4 new 52-wk highs and 0 52-wk lows. The industry level relatives are the one negative component for the XLC from a technical perspective, but we note a clear bullish reversal among Media Co.’s and the primary driver of outperformance, the Internet Media & Services Industry is near-term oversold and prime for a bounce.
Economic and Policy Drivers
It’s interesting that in the month the flipped the debate on Fed. interest rate policy, the sectors that had the most to lose by way of persistent high inflation were punished for their success over the course of the longer-term bull market. Now expectations are that the Fed will pivot to a dovish policy as soon as September. We think an economic soft landing is the perfect environment for Mega Cap. Growth outperformance to continue given the centrality of cloud computing, internet media connectivity and AI, the Growth engines of the sector should continue to benefit throughout the bull cycle.
The election cycle will be interesting to monitor as policy rhetoric heats up. One of the favorite bugaboos for the XLC is the talk of anti-trust actions against GOOG, META and NFLX. If we see either candidate seek to leverage that as a populist issue to appeal to voters, we could see some volatility.
In Conclusion
Investors rotated towards Value from Growth in July, leaving sectors like XLC near-term oversold. The Elev8 Sector Rotation Model recommends an OVERWEIGHT position in XLC of +1.64% vs. the benchmark S&P 500 for August 2024.
Chart | XLC Technicals
- XLC 12-month, daily price (200-day m.a. | Relative to SPX)
- We are a bit concerned with the relative action from May through the present, but it doesn’t violate our long-term trend rules at this point and we remain long the Sector
Data sourced from Bloomberg
