Saturday, September 4, 2010

SPDR Sector Review/Preview September 4, 2010: There's somehting Happening Here

There's Something Happening Here....

A couple of things struck me as I looked through the SPDR Sector ETF's this morning. the first observation: all sector SPDR's had similar a pattern of candles the last three days of this week, with three white candles, gapping higher each day, with a smaller real body each day. All had a positive Moving Average Convergence Divergence (MACD) cross and a rising positively sloped RSI during this period. This indicates the rally was broad based and has momentum to run further as indicated in my Macro Week In Review/Preview last night. The decreasing size of the candle's real bodies could be a natural slowdown for a large rally or indicate a topping. But let's leave that for now.

What It Is Ain't Exactly Clear...

The second observation is that the sectors could be split into three groups qualitatively looking at the strength of those three candles. The weakest group contains the Utilities, Industrials and Consumer Staples shown here:

Utilities Select Sector SPDR, XLU

Industrials Select Sector SPDR, XLI

Consumer Staples Select Sector SPDR, XLP

Note how the real bodies of the third candle of these charts is very thin. In fact the Industrials made a doji and the Utilities looks more like a flag then a drive higher. Also both the Utilities and Consumer Staples had Hanging Man candles, a possible bearish omen.

The second group had a much more bullish run. Their charts are here:

Materials Select Sector SPDR, XLB

Financials Select Sector SPDR, XLF

Technology Select Sector SPDR, XLK

Health Care Select Sector SPDR, XLV

These sectors, the Materials, Financials, Technology and Health Care, all had good sized real bodies for the third candle and closed near the top of the candle. They also had moderate or small shadows indicating the third candle was a very bullish day. Finally they all have some room to run before resistance.

The last group containing Energy and Consumer Discretionary, had strong runs but a third candle with longer shadows on both ends. Not quite as strong as the second group but not exhibiting the possible bearish nature of the first group either. Here are their charts:

Energy Select Sector SPDR, XLE

Consumer Discretionary Select Sector SPDR, XLY

....Everybody Look What's Going Down....

What to make of this? Smells like a possible rotation out of Industrials, Utilities and Staples, the defensive sectors, into the Financials, Technology, Materials and Health Care, more aggressive sectors where risk taking occurs.

....Paranoia Strikes Deep....

Maybe a rotation is happening, but take a step back. Looking at a longer chart for Financials as a proxy shows a long extended range. Still some work before leadership higher occurs.

Financials Select Sector SPDR, XLF

You've read this far now enjoy the music and trade'm well!

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