Consumer Staples Select Sector SPDR Fund (XLP) – From a relative strength perspective XLP continues to advance despite a technically difficult week for the S&P 500. This is likely because investors have a tendency to gravitate towards the relative safety of mega-cap, multi-national, defensive stocks during times of uncertainty. From a pure price perspective however, the 4/3/13 negative outside day warns of a pause and leaves resistance at 40.27.
Energy Select Sector SPDR Fund (XLE) – After approaching formidable supply near 80-81 the sellers began to emerge and quickly brought XLE down 5% in just 6 days. An oversold condition has thus developed and initial support near 75.50-76 is at hand, therefore a technical oversold rally should not be surprising. However, the relative strength chart suffered a breakdown. This, coupled with a distribution formation warrants a more cautious stance.
Industrial Select Sector SPDR Fund (XLI) – There appears to be a 3-month head and shoulders top forming. Neckline support corresponds to the late-Jan. and Feb. 2013 lows near 40. The head is the Mar. 2013 high (42.16), which is also near the Oct. 2007 peak, so this is expected to be a significant area of resistance. A violation of neckline support may require a portfolio adjustment as it opens the door for a move towards next support closer to 38-38.50.
Utilities Select Sector SPDR Fund (XLU) – The follow through in both absolute and relative terms from the late-Mar. 2013 breakout is impressive. It appears that this trend could be sustainable despite trading in overbought territory. This would make pullbacks attractive entry levels. As such, there has been an increased allocation to the portfolio. On the other hand initial support now resides near 38.50 or near the Aug. 2007 high and the Mar. 2013 breakout level.
Materials Select Sector SPDR Fund (XLB) – The failure in Mar. 2013 to push through initial resistance near 40 has set into motion the potential for a double top formation. Neckline support resides near 37.35 or the Feb. 2013 low. A violation of support opens the door for a move into the mid-30s. From a portfolio basis, the relative underperformance has been glaring for much of this year. Technical bounces need to be monitored and proven sustainable.
iShares Dow Jones US Telecom Index (IYZ) – A lot of things can change in the span of one week. For example IYZ has broken out of a small ascending triangle pattern, whose neckline coincidentally converged with the 50/150-day and 10/30-week moving averages. A relative strength breakout from the 2013 dwntrend line also suggests stabilization. With that said, IYZ is not yet quite out of the woods. It is best to sit on the fence before leaning to far to one side.
J. Beck Investments is an independent provider of technical research for ETFs.