As highlighted in last week’s update, there were signs emerging that money was rotating out of some of the classic defensive sectors that have been outperforming year to date.

Follow through last week was apparent as underperforming sectors included Utilities (XLU, -2.59%), Consumer Staples (XLP,     -0.17%), and Health Care (XLV, 1.07%).  The two leading Select SPDR Funds were Consumer Discretionary (XLY, 2.21%) and Industrials (XLI, 2.52%).

Of the two leaders it may be of interest to note how the former behaves somewhat like a defensive cyclical, while the latter is more heavily influenced by the state of the economy.  Contrary to consensus, it appears that the other deep cyclical Select SPDR Funds like Energy (XLE) and Materials (XLB) still require more work to declare that a sustainable cycle of outperformance has emerged.

With that said, to judge the health of the overall stock market the price charts of all the sectors needs to be monitored and for the most part, they appear to be holding up fairly well, supporting the continuation of the 2009 cyclical bull market. [Defensive Sector ETFs Lead Outflows]

Technology Select Sector SPDR Fund (XLK) –  The bullish positive outside month pattern in Apr. 2013 and the relative strength breakout suggest that XLK has gone from loser to leader.  Look for the Technology sector to lead the stock market higher as it also the largest sector by market cap. in the S&P 500.  Formidable overhead supply still remains close by at the Sep. 2012 high (31.74) and the 38.2% Fibonacci retracement of the 2000-2002 decline (32.04).

Financial Select Sector SPDR Fund (XLF) –  From a relative strength perspective the technical improvement is noticeable, however XLF has so far failed to convincingly break out.  The price chart also sports a potential head and shoulders top pattern may be developing.  Trading accounts should place initial support near the bottom of the 5/3/13 upside gap (18.68).  To the upside, initial resistance is pure round number psychology (20).

Health Care Select Sector SPDR Fund (XLV) –  XLV is in the midst of a small consolidation.  This is not necessarily a bad thing as it helps to alleviate an overbought condition.  The outcome of this consolidation could impact the tactical direction.  For example, the inability to hold onto initial support around 46-47 confirms a near-term top.  On the other hand, a move above the Apr. 203 high (48.38) sets into motions the resumption of the primary uptrend.

Next page: Energy, industrials, utilities and more sectors