SPDR Sector Review/Preview September 18, 2010

In my review of the SPDR sectors this morning I noticed again that then could be separated into 3 groups based upon their recent price performance. Each chart has some interesting technicals associated with it that I have detailed previously on chart.ly and in my twitter stream so I will not go into those details here. I will focus here on the relative strength of each sector from the recent price history. The first and strongest group contains Technology, XLK and Consumer Staples, XLP. These charts show strong uptrends since bottoming in the beginning of September.

Technology Select Sector SPDR, XLK
Consumer Staples Select Sector SPDR, XLP
The XLK has just completed an bullish Inverse Head and Shoulders pattern but sits near 22.62 resistance from June with resistance at 24 higher and a target from the pattern at 24.75. It also printed a bearish Hanging Man Friday though. The question for XLK in the future is whether the Hanging Man or the Inverse Head and Shoulders is confirmed. The XLP tagged the March-April resistance at 27.80 but stalled there. It has clear air above it if it can get through. Both charts show support areas at the highs in August and below that at their respective Simple Moving Averages (SMA's). Both show that the shorter SMA's the 20 and 50 day are rising, to or through a falling 100 day SMA and a flattening 200 day SMA. This is positive for prices. But both also show and waning Moving Average Convergence Divergence (MACD) and flattening Relative Strength Index (RSI) suggesting the upward moves may be running out of steam. Remember these are the strongest sectors, but have shown their first sign of weakness.

The second group shows a few more signs of sluggishness and contains Health Care, XLV, Consumer Discretionary, XLY, Materials, XLB and Industrials, XLI.

Health Care Select Sector SPDR, XLV
Consumer Discretionary Select Sector SPDR, XLY
Materials Select Sector SPDR, XLB

Industrials Select Sector SPDR, XLI
These sectors are all at or near resistance. But more significantly they are all showing various degrees of flagging at that resistance. XLV is just beginning at the one extreme and XLB and XLI have been flagging for a week or more, at the other end. Three of them nearly printed bearish Hanging Man candles Friday, with long shadows showing signs of selling pressure emerging, with the fourth having a flat out bearish day Friday. They all exhibit a flattening or falling RSI and a MACD that has been declining for several days. The SMA's on the short end are upward sloping, so they may snap out of this flattening. But they are showing signs of waning strength at least.

The third group is the weakest and includes Financials, XLF, Energy, XLE and Utilities, XLU. Take special notice to the fact that the Utilities sector, which has been the strongest as recently as two weeks ago is now one of the weakest.

Financials Select Sector SPDR, XLF
Energy Select Sector SPDR, XLE
Utilities Select Sector SPDR, XLU
All three had there high point on Monday (XLE briefly higher in Tuesday) and fell through the week. It is possible that the price action could be a bull flag for XLF and XLE but, all three printed bearish engulfing candles on Friday, suggesting more downside. Also, all have decidedly downward trending RSI and MACD indicators. The first two, XLF and XLE, had shown good runs higher previously, ending near the 200 day SMA and are now tracking the falling 100 day SMA lower. These two have been bouncing in a range for 4 months and the recent top was near the top of that range. XLU has the worst looking momentum indicators with MACD that crossed lower this week and RSI that has been falling for over a week. Putting a little confusion into the mix, all three sectors have rising short term SMA's, which could give them a lift.

As you look through theses charts note that their positioning is deliberate and intentional. They exhibit a progression from a strong uptrend to a flattening and then a potential downward reversal. Some of the sectors that have been leaders are stalling and pulling back. This is not a prediction that the rally that has taken the market to test its recent highs is over. One week's action does not create a trend or a change. I do however think that there is a message in the rotation. Having Technology and not Utilities lead the way is a good omen for future market strength if it holds up. But it also shows that there are sectors like Financials that need to participate for a full blown rally, which are not currently, and Consumer Staples that you would not expect to lead a broad based rally, but are. Until this shift occurs we may be in for more of the same stumbling along for a while.

Trade'm well.

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!

SPDR Sector Review/Preview August 14, 2010

From last night's Macro Week in Review/Preview we see that a rising volatility index combined with that stronger dollar should continue to press stocks lower next week. How does that play out when looking at the individual market sectors? Lets take a look.

Materials Select Sector SPDR, XLB

It fell out of the 32.20 to 33 range this week and below the 100 and 200 day SMA. Now it is seeking support at 30.61 the 50SMA with 29.50 below that. Resistance is at SMA's then the channel bottom at 32.20.

Energy Select Sector SPDR, XLE

It is seeking support at what has been a key area between 52.90 and 53.40 with the 50 day SMA there to help. If it holds then the 54.50 gap area and the 100 and 200 day SMA's above are resistance. Support can be found lower at 51ish then 50.25.

Financials Select Sector SPDR, XLF

It is looking to test the bottom of the recent range at 13.85 for support. If that fails then the long term R/S line at 13.55 is the next support. On a bounce resistance can be found at 14.44, the day 50 SMA and 200 day SMA then the top of recent range at 15.05.

Industrials Select Sector SPDR, XLI

It lost the 100 day SMA this week and is now on support of both the 50 day and 200 day SMA's. Failure here sees the next support at the 27.75 area before 26.80. Resistance on a bounce can be found above 29.50 at 30.19.

Technology Select Sector SPDR, XLK

Holding near support at the 21.19-21.30 area with support lower on a breakdown at 20.75 then 20.25. Resistance on a bounce can be found at 21.68 then the SMA convergence area 22.08-.25 and 22.50.

Consumer Staples Select Sector SPDR, XLP

Lost the recent uptrend line near the 100 day SMA and the support of the 200 day SMA this week. It regained the 200 day SMA after tagging the 50 day SMA later in the week and is now looking to hang on. Failure here sees support at 26.56 then 25.90 before the 25.25 area. Resistance on a bounce is found at 26.94 then 27.30.

Utilities Select Sector SPDR, XLU

The Utilities SPDR was knocked off the top but is finding support at the 30.35-30.72 range, with the RSI turning higher again. Resistance above is at 31 then the recent highs at 31.45. Support below comes at the SMA's 29.47-29.75. This sector is still the strongest.

Health Care Select Sector SPDR, XLV

The 100day SMA drove this lower to support of the 50 day SMA this week, near the 29.28-.38 area. It looks to be flagging before another move. A push through the 50 day SMA leads to support at 28. A bounce sees resistance at the 100 day SMA then 30 before then the 200 day SMA above.

Consumer Discretionary Select Sector SPDR, XLY

This looks broken. It lost the 50 and 200 day SMA's this week and could not recover. 30.50-30.75 is a big support area and failure here sees support lower at 30 then 29. Resistance above the 200 day SMA is at 31.17 then 32.32 the 100 day SMA.

In summary nothing here looks strong. Just varying degrees of weakness. Some are sitting on key support levels but the other indicators are showing weakness as opposed to strength. If I had to pick the strongest sector I would still go with the Utilities. Consumer Discretionary, 2/3 of GDP, looks the weakest. That does not bode well for the market in general. Utilities will not lead the market to new highs. Get ready for at least a little more downside. Trade'm well.