Sector ETF Technical Outlook

Energy Select Sector SPDR Fund (XLE) –  Although there appears to be the potential for additional relative and absolute weakness, the intermediate to longer-term picture still looks favorable. For example, trading above its February 2013 price breakout in the mid-70s and its April 2013 relative strength support point to continued leadership over time.  With that said the 6/21/13 negative outside week and the 6/20/13 downside gap allude to near-term weakness.

Consumer Staples Select Sector SPDR Fund (XLP) – Although it appears that investors have gravitated towards the relative safety of this low beta ETF, XLP still needs further repair to suggest sustainable leadership.  For example, the 5/31/13 negative outside week, the violation of the January 2013 uptrend line, and the recently turned down 10-week moving average have weakened its technical condition.  Initial supply moves down closer to 41.

Industrial Select Sector SPDR Fund (XLI) –  From a relative strength perspective, XLI is coming up on a major test as it approaches the 2011 downtrend line.  The ability to breakout would be technically significant as it suggests that this ETF is emerging as a leadership sector fund.  On the other hand, failure to convincingly push through resistance could begin the next underperformance cycle.  Therefore this inflection point needs to be monitored closely.

Materials Select Sector SPDR Fund (XLB) –  Granted the sharp decline last week has caused technical damage to the chart like the 6/20/13 downside gap and the negative outside week, but there may be bigger cause for concern.  It appears now that XLB is head for what could be neckline support of a head and shoulders top pattern near 37.10.  Manage portfolio risk accordingly as the ability to hold this support may just help build the right shoulders.

Utilities Select Sector SPDR Fund (XLU) – The May 2013 head and shoulders top breakdown warned of weakness..  XLU has since met its technical downside projection but has broken down again last week.  XLU can still decline somewhat more as it approaches a key level of support near 35, which corresponds to the 2009 uptrend and the 30-month moving average.  To the upside, initial support drops to the top of the 6/20/13 downside gap (37.49).

iShares Dow Jones US Telecom Index (IYZ) – IYZ is now testing support at the 150-day moving average near 25.  A violation here opens the door for a test of the March 2013 low of 23.61.  To the upside, initial support moves down to the recent breakdown level and the top of the 6/20/13 downside gap (25.72).  From a relative strength perspective, the recent decline is somewhat concerning, but it may take a move below the April 2013 low to trigger a reallocation.

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