For the most part last week’s top performing sector ETFs like the Energy/Materials/Technology SPDR Select Sector Funds have been some of the weakest sector funds year to date. As a result there was an associated bounce relative to the S&P 500. However, these bounces still have the makings of a reflexive action and not a sustainable rotation into these sector ETFs.
What this means is that even though this may continue somewhat longer in the near-term, a return to the prevailing trend of underperformance is likely. The flipside to this call, again relatively speaking, is that those sector ETFs that have underperformed of late, but whose dominant trend is favorable, are allowing for more attractive entry points. [What’s Driving Low-Volatility ETFs]
At least for the foreseeable future, relative strength leadership sectors remain Health Care, Consumer Staples, Consumer Discretionary, Utilities, and Telecom. As long as these charts trend higher, then this is evidence that money is just rotating within the stock market and not leaving it altogether. [Why Technology ETFs Could Recover]
Technology Select Sector SPDR Fund (XLK) – Granted XLK had a solid week, but the overall technical picture has not changed. In other words, the rally seems thus far to be reflexive. Even from a relative strength point of view, the bounce is still just a contra trend rally to the predominant downtrend. Further work needs to be done in order to change this. With that said the outside month pattern that is forming could either change this or reinforce the bears’ camp.
Financial Select Sector SPDR Fund (XLF) – XLF still trades within its Oct. 2011 uptrend channel. The top of the channel near 20 will now represent initial resistance. Initial support is evident at the Apr. 2013 low (17.75). The bottom of the channel near 16.50 should act as additional resistance as it also corresponds to the Sep. 2012 high and the bottom of the 1/2/13 upside gap. Relative to the S&P 500, a posible head and shoulders top looks to be forming.
Health Care Select Sector SPDR Fund (XLV) – There has been some underperformance from XLV over the last two weeks, but this does not change the technical outlook. In fact, the sideways trading gives this ETF a chance to alleviate what had become an extreme overbought condition. The key will be to have patience and to look at pullbacks as an opportunity to get involved at discounted prices. With that said, initial support remains 46.02 or the Apr. 2013 low. [ETF Chart of the Day: Healthcare]
Consumer Discretionary Select Sector SPDR Fund (XLY) – Another new high was reached last week on both a relative and an absolute basis. So one needs to beg the question: how high is high for XLY? It appears that XLY is head for a test of the top of its 2009 uptrend channel near 56. A breakout allows for a move towards psychological supply at 60. On the downside, initial support is fairly conservative at the Mar. 2013 breakout level near 51.50.
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Consumer Staples Select Sector SPDR Fund (XLP) – The pullback last week on the price chart as well as the relative strength chart appear to be merely corrective rather than the sign of a reversal. The reason being is that the dominant price trend remains clearly up and the relative strength breakout alludes to sustainable outperformance. The charts will not move in just one direction, but a healthy uptrend suggests that corrections should be buying opportunities.
Energy Select Sector SPDR Fund (XLE) – The steep selloff in Apr 2013 was follow by a sharp snapback. However, damage was done to the chart as the 50-day moving average has now turned down and the lower low/high formation since Mar. 2013 is still in force. The question now that traders must ponder is whether the 4/25/13 high has marked the next lower high. In order to confirm another lower low, XLE will need to breach the Apr. 2013 low (73.52).
Industrial Select Sector SPDR Fund (XLI) – Although XLI rallied last week after finding support near 40 or the Feb. 2013 low, this may have solidified some kind of neckline support of a complex head and shoulders top. A violation of this support confirms a near-term top and opens the door for a move towards next support near 38-38.50. To the upside, initial resistance continues to reside at the Mar. 2013 high (42.16).
Utilities Select Sector SPDR Fund (XLU) – The path of least resistance is still up. In fact, the ability to clear psychological supply at 40 has opened the door for a move towards 42 or near the May 2008 high and the top of the 2009 uptrend channel. With that said, the story seems to really be on the relative strength chart as XLU looks to have moved above the Nov. 2012 high as well as the 2011 downtrend. This suggests that the outperformance to continue.
Materials Select Sector SPDR Fund (XLB) – Broad sideways trading continues in a well defined range defined by the Jan/Mar. 2013 highs near 39.50-40 and the Feb/Apr. 2013 lows closer to 37-37.35. A move above the top of this range could set into motion a rally to the 2011 high (41.28). On the other hand, a violation below initial support opens the door for a move to secondary support near 34.50-35 or the Nov. 2012 low and the bottom of the 11/19/13 upside gap.
iShares Dow Jones US Telecom Index (IYZ) – It appears that IYZ has broken out of a bullish flag formation on 4/19/13. The rally that followed has taken out formidable supply at 26.25 or the Sep. 2013 high. This now opens the door for a test of the Jun. 2008 high (27.50). From a relative strength perspective, IYZ has also broken out. To protect profits initial support rises to 4/24/13 pivot low (26.03).