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Aerospace Has Been Strong, But It's Relative Strength Momentum Is Weakening

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Bull markets are fueled by sector and industry group rotation.  Throughout the bull market since 2009, we've seen each of the key aggressive sectors take their turn leading on a relative basis.  Within each sector, we also see relative leadership and weakness among industry groups.  For example, over the past month, aerospace stocks ($DJUSAS) have performed extremely well.  In fact, the DJUSAS is one of only two industry groups in the sector that have moved higher and its 4.17% gain over the past month easily beats defense stocks ($DJUSDN).  Take a look at the one month performance chart among industrial groups:


At the other end of the spectrum is airlines ($DJUSAR), where we've this group plunge over 14% in the past month.  So far, groups like aerospace have kept the overall market from losing major price support.  But we're getting closer and closer to doing just that and, perhaps more importantly, the relative strength from the DJUSAS is becoming quite suspect.  Check out the DJUSAS:$SPX ratio below:

Aerospace has shown significant relative strength over the past year, but this strength did struggle for two months after a relative negative divergence emerged at the early December 2016 high.  The relative MACD now looks quite similar to how it looked then so don't be shocked if the stock market loses relative strength from the DJUSAS over the next couple months.  It doesn't mean that aerospace is headed lower, but I would expect it to no longer be the leader it's been.

What does that mean?  Well, if the bull market is to stay intact and key support levels are to hold, we'll need to see the relative strength torch passed to other areas of industrials, as well as other areas within the S&P 500 (other sectors).

Happy trading!

Tom

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Tom Bowley
About the author: co-founded Invested Central in 2004 and served as the site's Chief Market Strategist for more than 10 years. Invested Central provides stock market education and guidance for those interested in making their own financial decisions. During his tenure at Invested Central, Tom co-hosted Market Open LIVE, a national radio broadcast that covered many of the largest markets across the U.S. In addition, he has spoken at various conferences throughout the United States and Canada and has taught thousands of traders across the globe how to trade equities more wisely with an emphasis on managing risk and intermarket relationships. Learn More
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