Sector ETFs

Consumer Discretionary Select Sector SPDR Fund (XLY) – XLY is pushing up against the top of its 2009 uptrend line near 56.40, which also interestingly resides near the top of the Dec. 2012 uptrend channel.  A breakout could ignite a rally towards psychological supply at 60.  On the other hand, initial support is raised to 54 or the bottom of the Dec. 2012 uptrend channel in order to protect profits.  Relatively speaking,XLY shows no sign of weakening at the moment.

Consumer Staples Select Sector SPDR Fund (XLP) – Wilder’s RSI Indicator has been negatively diverging from the price chart since Feb. 2013.  This is a sign that momentum is slowing.  It does not mean that a major top has been reached, but rather that this coupled with the failure to clear the Apr 2013 high (41.44) and the sharp selloff in relative strength warrants a more defensive posture at this point.  The Apr. 2013 low (39.52) remains initial support.

Energy Select Sector SPDR Fund (XLE) –  Over the last three weeks or so XLE witnessed strong bounces on both the price and relative strength chart.  However, it has so far failed to clear key overhead supply near 81, which corresponds to the Jan. 2008/2011/2013 highs. Also noteworthy, the Feb. 2013 relative strength downtrend is still intact.  There is a battle going on between the bulls and the bears, but it will take at least a relative strength breakout to alter this portfolio.

Industrial Select Sector SPDR Fund (XLI) –  Last week XLI has broken out above key resistance near 42 or the 2007/Mar. 2013 peaks.  Initial support is there raised up to the prior breakout level.  A move through this resistance opens the door for a move into the mid-40s or a technical target based on a 2-month head and shoulders bottom pattern.  XLI has also reversed its Mar. 2013 relative strength downtrend.  Pullbacks should allow for a better entry.

Utilities Select Sector SPDR Fund (XLU) – The price chart for XLU reached a peak in Apr. 2013 (41.44).  It is interesting however, that the relative strength chart began to turn down about a week earlier.  The underperformance has been sharp, but there is no evidence yet of a turnaround.  The price chart may still have further to drop too as next support isn’t until 38-38.50, which, among other things is the 38.2% Fibonacci retracement of the Jan.-Apr. 2013 rally.

Materials Select Sector SPDR Fund (XLB) –  There is good news and maybe not so good news showing up on the chart.  The good news is the breakout of the top of the rising wedge pattern suggests a test of the Apr. 2011 high (41.28).  Failure to clear this resistance is the posotential bad news as XLB could be forming the head of a head and shoulders top pattern.  Neckline support would be near the Feb./Apr. 2013 lows closer to 37-37.35.

iShares Dow Jones US Telecom Index (IYZ) – In Apr 2013 IYZ broke out of a large cup and hand formation as well as its Sep 2012 relative strength downtrend line (vs. the S&P 500).  The technical breakout level near 26-26.25 will now act as initial support.  Failure to maintain initial support opens the door for a move towards the 4/17/13 low (25.35) and the 50-day moving average (25.25).  To the upside the Jul 2008 high (27.50) is initial resistance.

J. Beck Investments is an independent provider of technical research for ETFs.