Once again there are signs that investors are becoming more selective as well as defensive.

For instance, there were not so subtle shifts into the Health Care/Utilities/Consumer Staples Select SPDR Funds and the iShares Dow Jones Telecom ETF last week.  As this portfolio is a zero sum game, there had to be losers, at least relatively speaking, in order to fund the victors. [Defensive Sector ETFs: The Other ‘Great Rotation’]

Most notably was another relative strength breakdown in the Technology Select Sector SPDR Fund (XLK).  This coupled with the 4/5/13 downside gap and the now down trending 30-week moving average suggest that a right shoulder of a large 14-month head and shoulders top could be forming.

Continued weakness in the Energy and Financials Select SPDR Funds was also evident.  The question now is whether the overall S&P 500 can go higher in this type of trading environment.  Despite nearing the tail end of this cyclical bull market, my work suggests that the answer is yes. [Technical Guide to SPDR S&P 500 ETF]

Technology Select Sector SPDR Fund (XLK) – A surge above the left shoulder of this 14-month head and shoulders top could negate the bearish outlook as long as this is coupled with a turnaround in relative strength. However, the technical evidence is not quite there.  In fact, the continued divergence from the S&P 500 and the violation of initial support suggests that the right shoulder could be forming.  Initial support is now the top of the 1/2/13 upside gap (28.97).

Financial Select Sector SPDR Fund (XLF) –  Negative outside days are short-term technical patterns of distribution.  Four have developed in the last 3-weeks (3/19, 3/25, 4/1, and 4/3), which clearly seems to be a sign of profit taking.  Although it’s too early to call this more than a tactical development, the violation of the Sep. 2013 relative strength uptrend warrants a move into “under allocation territory”.  XLF is testing initial support near 17.95 +/- .05.

Health Care Select Sector SPDR Fund (XLV) –  Relative strength has exploded to the upside last week.  Moves like this are not seen every day and the trajectory is certainly not sustainable.  However, something is going on under the surface and money is clearly rotating into this sector ETF.  Other weakening sector ETFs allow for an increase to the portfolio allocation from 2%à3%. With that said, no changes are needed to technical levels.technical levels.

Consumer Discretionary Select Sector SPDR Fund (XLY) – XLY is probing at initial resistance near 53 or its technical target based on the Jan/Feb. 2013 breakout.  The ability to clear this resistance sets into motion a move towards the top of the 2009 uptrend channel near 56.  On the other hand, relative strength has not quite reached its prior high, which is a minor negative divergence.  So far it looks to be profit taking and maybe that is not a bad idea.