Energy Select Sector SPDR Fund (XLE) – Not all that much has change for XLE since our last writing, but a steady decline in relative strength supports this week’s reallocation of funding out of the Energy Select Sector SPDR Fund (XLE). We have therefore reduced our exposure from +2%à0%. Initial resistance remains near 80-81. A breakout could lead to an explosive rally as next resistance is into the low-90s.
Consumer Staples Select Sector SPDR Fund (XLP) –Another sharp move in relative strength, a breakout to new all-time highs, and the 3/24/13 positive outside week merit a reentry into XLP. Being four years into this cyclical bull market may also be hinting to a somewhat more defensive positioning by money managers. They may not love the market at these levels but need to be invested. Initial support rises to the Mar. 2013 low (38.20).
Industrial Select Sector SPDR Fund (XLI) – It is interesting how XLI slightly eclipsed its 2007 peak before pulling back. A convincing breakout could establish XLI as the next leadership sector. However, from a relative strength perspective XLI is undergoing some kind of bearish reversal as it has violated neckline support of a 3-month head and shoulders top. Given this technical backdrop and the goal of this portfolio the allocation has been adjusted from 0%à-1%.
Materials Select Sector SPDR Fund (XLB) – A large rising wedge pattern warns of a maturing trend. The bottom of the pattern and the Mar. 2013 low near 37.35 therefore makes a key level of support. On the other hand a move through the top of the pattern near 40 allows for a test of the Apr. 2011 high of 41.28. From a relative strength perspective XLB has again sold off for much of the week, leaving it testing key support at the Sep. 2012 low.
Utilities Select Sector SPDR Fund (XLU) – Technical improvements have been occurring after the 12% Aug-Nov. 2012 decline as XLU has now retraced nearly the entire decline. In fact, a potental bullish flag on the daily chart suggests that XLU could be gearing up for a breakout above the Aug. 2012 high (38.54). This would have some technical significance as it opens the door for a move towards psychological supply (40) and then the May. 2008 high near 42.
iShares US Telecom Index (IYZ) – The large 2/14/13 downside gap first warned of a weakening technical condition. This was followed up by two distribution patterns: the first was the 3/3/13 negative outside week and the second was a more significant Feb. 2012 negative outside month. Continue to monitor initial support at 23.61 or the Feb. 2013 low as this may correspond to a neckline support of a 4-month head and shoulders top.
J. Beck Investments is an independent provider of technical research for ETFs.