Energy Select Sector SPDR Fund (XLE) – Although XLE looks to be pushing through a key level of resistance, it is the failure to clear the Feb 2013 relative strength downtrend that allows for an under allocation. With that said, in order to protect profits, initial support rises to 78.25-78.50 or the bottom of the 5/3/13 upside gap and the 50-day moving average. To the upside, a convincing breakout could ignite a rally towards psychological supply at 90.
Industrial Select Sector SPDR Fund (XLI) – Of the deep cyclical Select SPDR Funds, XLI appears to have the strongest technical attributes. In fact, the relative strength technical breakout at the end of last week warrants a slightly more aggressive outlook. With that said, an overbought condition exists and XLI is approaching a 2 –month head and shoulders target. The prior neckline and the 50-day moving average near 42 remains initial support.
Utilities Select Sector SPDR Fund (XLU) – The Jan-Apr 2013 rally of 21% resulted in an extreme overbought condition as this ETF began to pull back. It is interesting how 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 sustainable turnaround yet. 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) – XLB still needs to clear its Mar 2013 breakdown level on the relative strength chart to signal that the technical damage is being repaired. There is also resistance at 41.28 or the Apr 2013 high to contend with. Failure to clear this resistance could set into motion the formation of 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) – A potential head and shoulders top on the relative strength chart, an overbought condition, and the proximity to its Jun 2008 high (27.50) is the basis for the allocation shift. Initial support corresponds to the technical breakout level near 26-26.25. Failure to maintain this level opens the door for a move towards the 4/17/13 low (25.35) and the 50-day moving average (25.25).
J. Beck Investments is an independent provider of technical research for ETFs.