The Sector Edge - January 5, 2026
- Stephen Suttmeier
- Jan 5
- 14 min read
*** Please see the bottom of this report for important disclaimers and disclosures.***
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Ranks plus a look at Energy, Technology, and Steel
Narrow sector leadership in 2025: Only XLK, XLC, and XLI beat the SPY
The SPDR S&P 500 ETF (SPY) posted a solid +16.4% gain in 2025, but market leadership was narrow. Only Technology (XLK), Communication Services (XLC), and Industrials (XLI) outperformed the benchmark, advancing 23.8%, 21.6%, and 17.7%, respectively. In contrast, traditionally defensive areas lagged meaningfully, with Consumer Staples (XLP) and Real Estate (XLRE) declining 1.2% and 0.8% for the year.
Tactical Sector Ranks
The Top Five Tactical Sector Ranks are Healthcare (XLV), Technology (XLK), Industrials (XLI), Communication Services (XLC), and Materials (XLB). Only XLK, XLC, and XLI also appear in the top five of the 52-week Ranks.
The Bottom Five Tactical Sector Ranks are Real Estate (XLRE), Staples (XLP), Utilities (XLU), Discretionary (XLY), and Energy (XLE). Four of these – XLRE, XLP, XLY, and XLE – also rank in the bottom five of the 52-week Ranks.
Energy sets up for a breakout from a late 2024-early 2026 bullish consolidation
Energy (XLE) has defended its cluster of weekly moving averages (WMAs) as support since late August 2025 and is in position to break higher from a late 2024 into early 2026 bullish consolidation. A decisive rally above chart levels at 46.46-47.41 would confirm this positive setup and suggest upside potential beyond the 2024 highs at 48.96-49.49 to the mid 2024 peak at 50.76 initially and then higher toward 56.75. Until then, holding above or within improving WMA and chart supports from 44.61 down to 42.35 would keep XLE constructive.
XLE forms a potential double bottom vs. the SPX
Although XLE remains within a long-term lagging trend relative to the SPX, the sector has a potential double bottom from its October and December lows vs. the SPX. It would take a breakout above the declining 26- and 40-relative WMAs to confirm this double bottom and signal a shift to tactical leadership for Energy.
Technology: Consolidates within bullish absolute and relative price trends
Technology (XLK) consolidates within bullish absolute and relative price trends. Continuing to defend rising 13- and 26-week moving averages as support from 144.03 to 138.72, with additional support at the late November higher low at 133.74, would keep this bullish setup intact with upside potential back to 153-156 (late October high and the upside count for the mid 2025 breakout) and potentially toward 165 (tactical consolidation target). If XLK continues to hold is breakout from an early 2024 into late 2025 bullish consolidation pattern relative to the SPX, it would bode well for the sector.
Steel (SLX): Big base breakout intact with room to run to 97 and 112-114
The VanEck Steel ETF (SLX) broke out from its large base that formed between late 2023 and late 2025 and an even bigger base stretching back to 2008 (Sep 8 The Sector Edge). Holding above tactical support at 81.22 keeps the immediate pattern bullish, but the overall chart structure remains positive while above the 77.42 to 74.25 zone (2011 peak and late 2023-mid 2025 peaks) with upside potential to 97 (late 2023-late 2025 basing pattern count), 114 (May 2008 peak), and 134 (big base upside count).
Sector Ranks and Scores
S&P 500 GICS Level 1 Sector ETF Ranks and Scores
We evaluate the relative strength and momentum of S&P 500 GICS Level 1 sector ETFs using a multi-dimensional ranking approach. This analysis incorporates both short-term and long-term performance metrics to identify sector leadership and underperformance. Key inputs include Tactical Rank, 52-week Rank, Trend Scores, and Long-term Trend Scores. Trend Scores are evaluated on both an absolute price basis and relative to the S&P 500 (SPX) benchmark. Combined, these indicators provide a comprehensive view of each sector’s technical condition and trend durability across multiple timeframes.
Key Indicators
Tactical Rank: Uses three short- to intermediate-term weekly simple moving averages (WMAs) to determine the rank: The 13-, 26-, and 40-WMAs. Longer WMAs carry greater weight in the ranking.
52-week Rank: Calculated using the 52-week rate of change to assess longer-term strength.
Trend Score: Ranges from -10 to +10 and incorporates the 13-, 26-, and 40-WMAs. Higher scores indicate stronger trends with prices above rising WMAs. Lower scores indicate weaker trends with prices below declining WMAs. Longer WMAs are more heavily weighted.
Trend Score vs. SPX: Applies the same methodology as the Trend Score but uses the ratio of the ETF versus to the S&P 500 Index to determine relative performance.
Long-term Trend Score: Ranges from -20 to +20 and includes the 13-, 26-, 40-, and 200-WMAs. Higher scores reflect stronger long-term uptrends, while lower scores indicate long-term downtrends. Longer WMAs carry more weight.
Long-term Trend Score vs. SPX: Applies the Trend Score LT methodology to the relative price ratio of the ETF compared to the S&P 500.
Narrow sector leadership in 2025: Only XLK, XLC, and XLI beat the SPY
The SPDR S&P 500 ETF (SPY) posted a solid +16.4% gain in 2025, but market leadership was narrow. Only Technology (XLK), Communication Services (XLC), and Industrials (XLI) outperformed the benchmark, advancing 23.8%, 21.6%, and 17.7%, respectively. In contrast, traditionally defensive areas lagged meaningfully, with Consumer Staples (XLP) and Real Estate (XLRE) declining 1.2% and 0.8% for the year.
Chart 1: 2025 sector ETF returns
Source: Optuma, Suttmeier Technical Strategies
S&P 500 GICS Level 1: Sector ETF Summary
Top Five Tactical Sector Ranks: XLV, XLK, XLI, XLC, and XLB
The Top Five Tactical Sector Ranks: Healthcare (XLV), Technology (XLK), Industrials (XLI), Communication Services (XLC), and Materials (XLB). XLI and XLB replaced Discretionary (XLY) and Financials (XLF) in the top five. Only XLK, XLC, and XLI also appear in the top five of the 52-week Ranks. XLI reached a 52-week weekly closing basis and record high. XLB probed to a 13-week high.
Bottom Five Tactical Sector Ranks: XLRE, XLP, XLU, XLY, and XLE
The Bottom Five Tactical Sector Ranks: Real Estate (XLRE), Consumer Staples (XLP), Utilities (XLU), Discretionary (XLY), and Energy (XLE). XLY replaced Industrials (XLI) in the bottom five. Four of these – XLRE, XLP, XLY, and XLE – also rank in the bottom five of the 52-week Ranks.
Tactical Ranks
· Top Five: Healthcare, Technology, Industrials, Communication Services, and Materials
· Bottom Five: Real Estate, Staples, Utilities, Discretionary, and Energy
52-week Ranks
· Top Five: Technology, Communication Services, Industrials, Financials, and Utilities
· Bottom Five: Real Estate, Staples, Energy, Discretionary, and Materials
Trend Scores
· Bullish absolute and vs. SPX: Healthcare and Technology
· Bearish absolute and vs. SPX: Real Estate and Staples
· Bullish absolute but negative relative scores: XLI, XLC, XLB, XLF, XLE, XLY, and XLU
Long-term Trend Scores (LT Trend Score)
· Bullish absolute and vs. SPX: Technology and Communication Services
· Bearish absolute and vs. SPX: Real Estate
· Bullish absolute but negative relative scores: XLV, XLI, XLB, XLF, XLE, XLY, and XLU
· Zero absolute score: Staples
Table 1: S&P 500 GICS Level 1 Sector ETF Trend Ranks and Scores as of 1/2/2025: Sorted by Tactical Rank
Source: Optuma, Suttmeier Technical Strategies
Sector ETF Trend Scores for the last 10 weeks
· Strongest: XLY, XLF, XLV, XLI, XLB, and XLK (all are maximum positive) followed by XLC
· Weakest: XLRE and XLP (both are maximum negative)
· Positive over last 10 weeks: XLC, XLY, XLE, XLF, XLV, XLI, XLK, and XLU
· Negative over the last 10 weeks: XLP
· Improved last four weeks vs. prior four weeks: XLY, XLF, XLV, XLI, and XLB
· Deteriorated last four weeks vs. prior four weeks: XLE, XLRE, and XLU
Table 2: Sector ETF Trend Scores for the last 10 weeks
Source: Optuma, Suttmeier Technical Strategies
Sector ETF Trend Scores vs. the S&P 500 for the last 10 weeks
· Strongest: XLK followed by XLV
· Weakest: XLY, XLP, XLRE, and XLU (all are maximum negative) followed by XLC, XLE, XLF, XLI, and XLB
· Positive over last 10 weeks: Only XLK
· Negative over the last 10 weeks: XLY, XLP, XLE, XLF, XLI, XLB, and XLRE
· Improved last four weeks vs. prior four weeks: XLF, XLV, and XLB
· Deteriorated last four weeks vs. prior four weeks: XLI and XLU
Table 3: Sector ETF Trend Scores relative to the S&P 500 for the last 10 weeks
Source: Optuma, Suttmeier Technical Strategies
Sector ETF Long-term Trend Score for the last 10 weeks
· Strongest: XLY, XLF, XLV, XLI, XLB, and XLK (all are maximum positive) followed by XLC
· Weakest: XLRE followed by XLP (at zero)
· Positive over last 10 weeks: XLC, XLY, XLE, XLF, XLV, XLI, XLB, XLK, and XLU
· Negative over the last 10 weeks: None
· Improved last four weeks vs. prior four weeks: XLY, XLF, XLV, XLI, and XLB
· Deteriorated last four weeks vs. prior four weeks: XLRE and XLU
Table 4: Sector ETF Long-term Trend Scores for the last 10 weeks
Source: Optuma, Suttmeier Technical Strategies
Sector ETF Trend Long-term Scores vs. the S&P 500 for the last 10 weeks
· Strongest: XLK followed by XLC
· Weakest: XLY, XLP, XLRE, and XLU (all are maximum negative) followed by XLE, XLF, and XLB.
· Positive over the last 10 weeks: XLC and XLK
· Negative over the last 10 weeks: XLY, XLP, XLE, XLF, XLV, XLB, XLRE, and XLU
· Improved last four weeks vs. prior four weeks: XLF, XLV, and XLB
· Deteriorated last four weeks vs. prior four weeks: XLE, XLI, and XLU
Table 5: Sector ETF Long-term Trend Scores relative to the S&P 500 for the last 10 weeks
Source: Optuma, Suttmeier Technical Strategies
Relative rotation graph (RRG)
What is the RRG?
The Relative Rotation Graph (RRG) highlights sector leadership and rotation by plotting relative strength (x-axis) against relative momentum (y-axis) versus a benchmark. This creates four quadrants: Leading (upper right – positive relative strength and relative momentum), Weakening (lower right – positive relative strength and negative relative momentum), Lagging (lower left – negative relative strength and relative momentum), and Improving (upper left – negative relative strength and positive relative momentum). This framework shows the rotation of sectors through different phases of relative performance. Sectors tend to move in the clockwise direction, often crossing through all four quadrants.
Bullish RRG rotation: XLC, XLI, XLE, XLF, and XLB; XLY gained momentum
The sectors with a positive, up-and-to-the-right heading—indicating improving relative momentum and relative strength—are XLC, XLI, XLE, XLF, and XLB. XLI, XLE, XLF, and XLB show bullish rotation in the Improving quadrant. XLC shifted positive in the Lagging quadrant. XLY had a downtick in relative strength but relative momentum ticked higher last week as the sector approaches Improving from Lagging. XLP held steady in Improving.
Bearish RRG rotation: XLK, XLU, and XLRE; XLV lost momentum
Sectors with a negative, down-and-to-the-left heading—signaling deteriorating relative momentum and relative strength—are XLK, XLU, and XLRE. XLK remains in Weakening after failing to rotate back into Leading in mid to late November. XLU stalled in Improving after failing to rotate into Leading in early December and has since rotated into Lagging. XLV is the only sector in Leading but has lost relative momentum.
Chart 2: Relative rotation graph (RRG) for the S&P 500 sector ETFs
Source: Optuma, Suttmeier Technical Strategies
Energy
Energy sets up for a breakout from a late 2024-early 2026 bullish consolidation
Energy (XLE) has defended its cluster of weekly moving averages (WMAs) as support since late August 2025 and is in position to break higher from a late 2024 into early 2026 bullish consolidation. A decisive rally above chart levels at 46.46-47.41 would confirm this positive setup and suggest upside potential beyond the 2024 highs at 48.96-49.49 to the mid 2024 peak at 50.76 initially and then higher toward 56.75. Until then, holding above or within improving WMA and chart supports from 44.61 down to 42.35 would keep XLE constructive.
XLE forms a potential double bottom vs. the SPX
Although XLE remains within a long-term lagging trend relative to the SPX, the sector has a potential double bottom from its October and December lows vs. the SPX. It would take a breakout above the declining 26- and 40-relative WMAs to confirm this double bottom and signal a shift to tactical leadership for Energy.
Chart 3: SPDR Energy Select Sector Fund ETF (XLB) (top) and relative to the S&P 500 (bottom)
Source: Optuma, Suttmeier Technical Strategies
Technology
Technology: Consolidates within bullish absolute and relative price trends
Technology (XLK) consolidates within bullish absolute and relative price trends. Continuing to defend rising 13- and 26-week moving averages as support from 144.03 to 138.72, with additional support at the late November higher low at 133.74, would keep this bullish setup intact with upside potential back to 153-156 (late October high and the upside count for the mid 2025 breakout) and potentially toward 165 (tactical consolidation target). If XLK continues to hold is breakout from an early 2024 into late 2025 bullish consolidation pattern relative to the SPX, it would bode well for the sector.
Chart 4: SPDR Technology Select Sector Fund ETF (XLC) (top) and relative to the S&P 500 (bottom)
Source: Optuma, Suttmeier Technical Strategies
Steel
Steel (SLX): Big base breakout intact with room to run to 97 and 112-114
The VanEck Steel ETF (SLX) broke out from its large base that formed between late 2023 and late 2025 and an even bigger base stretching back to 2008 (Sep 8 The Sector Edge). Holding above tactical support at 81.22 keeps the immediate pattern bullish, but the overall chart structure remains positive while above the 77.42 to 74.25 zone (2011 peak and late 2023-mid 2025 peaks) with upside potential to 97 (late 2023-late 2025 basing pattern count), 114 (May 2008 peak), and 134 (big base upside count).
Chart 5: VanEck Steel ETF (SMH): Weekly chart
Source: Optuma, Suttmeier Technical Strategies
S&P 500 GICs 1 “cyclical” sector ETF charts
Financials: New absolute price high on a relative uptick vs. the SPX
Financials (XLF) remain in a positive absolute trend, supported by maximum positive trend scores, rising 26- and 40-WMAs, and the late-June breakout from a bullish consolidation. The sector reached a new weekly closing basis record high in late December as trend scores vs. the SPX held onto their uptick from maximum negative levels. An absolute breakout and retest pattern on bullish rotation vs. the SPX favors more upside for XLF.
Chart 6: Financials (XLF) and XLF vs. SPX (top), Trend Scores (center), and Long-term Trend Scores (bottom)
Source: Optuma, Suttmeier Technical Strategies
Industrials: New absolute price high on a relative uptick vs. the SPX
The Industrials sector (XLI) reached a new weekly closing basis record high last week on maximum positive absolute trend scores. Although XLI is holding onto a December into January uptick relative to the SPX, trend scores vs. the SPX remain lackluster. In summary, XLI is positioned for absolute upside, but sustained leadership from this cyclical sector remains elusive.
Chart 7: Industrials (XLI) and XLI vs. SPX (top), Trend Scores (center), and Long-term Trend Scores (bottom)
Source: Optuma, Suttmeier Technical Strategies
Materials: Shift to maximum positive absolute scores on an uptick vs. SPX
Materials (XLB) defended its rising 200-week moving average and stabilized on a positive shift in its absolute price trend scores (Nov 3 and Oct 20 The Sector Edge). Absolute trend score shifted to maximum positive levels last week with XLB in position for a bullish breakout (Dec 29 The Sector Edge). The sector also up-ticked from maximum bearish relative trend scores, improving after reaching a multi-year relative low vs. the SPX in late October. However, XLB remains below declining 26- and 40-WMAs and a long-term downtrend line relative to the SPX, which is a risky relative price setup until proven otherwise (Sep 2 The Sector Edge).
Chart 8: Materials (XLB) and XLB vs. SPX (top), Trend Scores (center), and Long-term Trend Scores (bottom)
Source: Optuma, Suttmeier Technical Strategies
Energy: Absolute and relative scores uptick as XLE positions for a breakout
After dropping to a multi-year low relative to the SPX in late December, Energy (XLE) rallied on both an absolute and relative price basis last week, increasing the potential for an absolute price breakout. Although XLE remains within a relative downtrend vs. the SPX, the sector could confirm a double bottom vs. the broader market if it regains its declining 26- and 40-WMAs vs. the SPX.
Chart 9: Energy (XLE) and XLE vs. SPX (top), Trend Scores (center), and Long-term Trend Scores (bottom)
Source: Optuma, Suttmeier Technical Strategies
S&P 500 GICs 1 “growth” sector ETF charts
Technology: Tactical dip within bullish absolute and relative trends
Technology (XLK) has dipped within bullish absolute and relative price trends. Continued closes above the rising 13-WMA would keep absolute trend scores at maximum positive levels. XLK retested its September breakout point and rising 26-WMA relative to the SPX but must sustain this tactical improvement on both an absolute and relative basis to overcome its early November weekly upside exhaustion gap and bearish engulfing pattern (Dec 22 The Sector Edge).
Chart 10: Technology (XLK) and XLK vs. SPX (top), Trend Scores (center), and Long-term Trend Scores (bottom)
Source: Optuma, Suttmeier Technical Strategies
Discretionary: Choppy setup on a tactical basis entering 2026
Although Discretionary (XLY) has maximum positive absolute trend scores with the potential to complete a bullish cup and handle (Dec 1 The Sector Edge), the sector has struggled over the last couple of weeks and shifted back to maximum negative scores vs. the SPX last week. Even with maximum negative relative trend scores, XLY continues to carve out a potential late-2022 to late-2025 head-and-shoulders bottom versus the SPX. That said, XLY must reclaim both its 40- and 200-week relative price moving averages (Dec 22 and Oct 6 The Sector Edge) to increase confidence in this sector’s potentially bullish absolute and relative price patterns.
Chart 11: Discretionary (XLY) and XLY vs. SPX (top), Trend Scores (center), and LT Trend Scores (bottom)
Source: Optuma, Suttmeier Technical Strategies
Comm Services: Bull flag breakout intact, but more relative strength needed
Although absolute trend scores have deteriorated slightly from maximum positive levels, Communication Services (XLC)’s in early December bullish flag breakout remains intact (Dec 8, Dec 1 and Nov 10 The Sector Edge). Although XLC recently shifted to a negative Trend Score vs. the SPX, XLC’s relative 200-WMA has begun to rise, which has underpinned the sector’s Long-term Trend Score vs. the SPX at a positive level. It would take strength above the 13-, 26-, 40-WMAs for XLC vs. the SPX to improve the Trend Score vs. the SPX.
Chart 12: Comm Services (XLC) and XLC vs. SPX (top), Trend Scores (center), and LT Trend Scores (bottom)
Source: Optuma, Suttmeier Technical Strategies
S&P 500 GICs 1 “defensive” sector ETF charts
Utilities: Corrects within bullish absolute trend but maximum negative vs. SPX
The Utilities sector (XLU) is pulling back on an absolute price basis as absolute trend scores roll over from maximum positive levels and relative trend scores deteriorate to maximum bearish levels. While XLU remains above key chart, trendline, and weekly moving-average support on an absolute basis, the sector has broken relative support versus the SPX.
Chart 13: Utilities (XLU) and XLU vs. SPX (top), Trend Scores (center), and LT Trend Scores (bottom)
Source: Optuma, Suttmeier Technical Strategies
Staples: Continues to struggle within a long-term lagging trend
The setup for Staples (XLP) remains challenged with maximum bearish relative trend scores within a multi-year lagging vs. the SPX, but what’s challenging for Staples is bullish for the broader equity market (Sep 2 The Sector Edge). XLP continues to defend important absolute chart support and the rising 200-week moving average (Nov 3 The Sector Edge), even in the face of this long-term lagging trend vs. the SPX, but a maximum bearish absolute trend score keeps this key support exposed to downside risk.
Chart 14: Staples (XLP) and XLP vs. SPX (top), Trend Scores (center), and LT Trend Scores (bottom)
Source: Optuma, Suttmeier Technical Strategies
Real Estate: A continued struggle on negative absolute and relative scores
We continue to monitor a potential base-building process for Real Estate (XLRE) from mid 2022 (Oct 20 and Sep 29 The Sector Edge) but need a sustained improvement in absolute and relative trend scores for any confidence in this pattern. This improvement is not happening. XLRE’s Trend Score hit maximum negative as of 12/19 as the sector dropped to a 13-week absolute price low. Trend scores vs. the SPX remain at maximum negative levels with XLRE once again reaching a multi-year relative in late December.
Chart 15: Real Estate (XLRE) and XLRE vs. SPX (top), Trend Scores (center), and LT Trend Scores (bottom)
Source: Optuma, Suttmeier Technical Strategies
Healthcare: Bullish rotation, positive absolute trend, and a double bottom vs. SPX
Healthcare (XLV) has rotated bullishly, with buyers defending support and driving a rally out of a tactical base (Oct 6 The Sector Edge) that invalidated the early 2024–early 2025 head and shoulders top. Absolute trend scores have shifted to maximum positive levels, confirming the bullish turn, but a consolidation following the retest of late-2024 highs would be reasonable and could offer a better entry point for new longs (Dec 1 The Sector Edge). On a relative basis, trend scores vs. the SPX have turned up from maximum bearish levels, confirming a double bottom at the August–September lows. The next step is clearing chart and downtrend resistance vs. the SPX.
Chart 16: Healthcare (XLV) and XLV vs. SPX (top), Trend Scores (center), and LT Trend Scores (bottom)
Source: Optuma, Suttmeier Technical Strategies
Suttmeier Technical Strategies, LLC (STS) provides financial commentary and market analysis for educational and informational purposes only. We are not registered investment advisors, and nothing published by STS should be considered personalized investment advice, a recommendation to buy or sell any security, or a solicitation to engage in investment activity. All content is impersonal and does not consider your individual financial circumstances. Past performance is not indicative of future results. Investing involves risk, and you should consult with a licensed financial advisor before making any investment decisions. STS or its representatives may hold positions in securities mentioned in our publications. Such holdings are subject to change without notice and do not constitute investment advice.
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