It is interesting how the May 23 negative outside day pattern marked a price high for the S&P 500. The subsequent June 20 downside gap and the June 21 negative outside week pattern confirmed that concerted distribution forces were at work.
The S&P 500 as well as these sector ETFs still need to repair this damage as none have made new highs. However, not all sector ETFs are the same.
Simple relative strength studies can quickly show which sector ETFs are performing better or worse than others, which can be very helpful in the context of managing a portfolio. For example, the relative strength chart of Consumer Discretionary Select Sector SPDR Fund (XLY) has again broken out to all-time highs, making it the only sector ETF in this report to do so. On the other hand the Materials Select Sector SPDR Fund (XLB) has violated a pivot low made in April 2013.
These divergences are evident in the table below. From a broad market perspective, continue to monitor how the S&P 500 behaves around next support (1534-1540) as a potential head and shoulders top could be forming.
Technology Select Sector SPDR Fund (XLK) – The relative strength breakout from the 2012 downtrend line still suggests intermediate to longer-term leadership as long as XLK remains above its April 2013 low. Violation of this support, again relatively speaking, would negate this call. The price chart still needs to repair damages made by the heavy selling over the last couple of weeks. Initial resistance remains the top of the 6/20/13 downside gap at 31.53.
Financial Select Sector SPDR Fund (XLF) – XLF managed to hold onto initial support near the bottom of the 5/3/13 upside gap (18.68) and bounce back to close the 6/20/13 downside gap. This is a good sign that the selling is abating. The ability to close this gap allows for initial resistance to move back to the May 2013 high (20.35). In the meantime, it appears that a trading range is unfolding between these two levels.
Health Care Select Sector SPDR Fund (XLV) – There are a couple of things going on that need to be monitored. The first is the potential head and shoulders top pattern that looks to have been developing over the past 3 months. Neckline support appears to be in the 46-47 range. The other is on the relative strength chart as XLV has held up fairly well and could be on the verge of a breakout as it is pushing up against overhead resistance.
Consumer Discretionary Select Sector SPDR Fund (XLY) – From a relative strength perspective, XLY is the only sector ETF that has broken out to all-time highs. This in its own right is a constructive sign for the market as it is evident that investors are not fleeing to the safety of more defensive sector ETFs. The flip side to this call is that XLY continues to trade below its 6/20/13 downside gap. Repeated failures warns of a test of the June 2013 low (53.96).