SPDR Sector Review/Preview October 30, 2010

Posted by Greg Harmon
on October 30th, 2010

A Study In Multiple Timeframes

With Friday being month end we have the benefit of monthly charts to add to the sector analysis this weekend. I will start at the monthly and drill down through the weekly and into the daily charts. Use this as a complement to the broader market Macro Week in Review and Monthly Addendum posted yesterday. As always you can see details of these individual charts and more on my twitter feed and on chartly.

Monthly Analysis

The majority of the monthly charts are near or through a 61.8% retracement of the move from the 2008 highs to the 2009 lows. They also have rising price action, rising Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD) indicators. This is all very bullish for the market on this timeframe. One troublesome indicator though is the volume divergence from price in the latest run up. As price has been rising, volume has been decreasing. This divergence is not necessarily a reason to sell stocks. The trend can continue higher, but it is an indication of something unusual and gives an reason to watch more closely and move stops higher or assess a need for downside protection with options perhaps. The best chart on this timeframe is Consumer Staples Select Sector SPDR, XLP and the worst is, Financials Select Sector SPDR, XLF. Below are two examples the best, XLP and a good but typical one Technology Select Sector SPDR, XLK.

Consumer Staples Select Sector SPDR, XLP Monthly Timeframe

Technology Select Sector SPDR, XLK Monthly Timeframe

The difference in the XLP chart is apparent right away. Not only is it through the 61.8% retracement of the 2008 – 2009 downward move but testing a full retracement. Notice in both charts how the shape of the RSI and MACD follow the price trend very closely. Also notice the decreasing volume in the move from April to the present. All the monthly charts can be found here for comparison.

Weekly Analysis

The weekly charts are also looking very similar to each other and looking bullish. Most are in a rising price trend with good RSI and MACD indicators. Most are at or near the top of the Bollinger band range. And most are well above all of their Simple Moving Averages (SMA’s). The can be split into 3 groups though quite readily. The 3 best charts are XLK, XLP, and Consumer Discretionary Select Sector SPDR, XLY. The next group contains Materials Select Sector SPDR, XLB, Energy Select Sector SPDR, XLE, Industrials Select Sector SPDR, XLI, Utilities Select Sector SPDR, XLU and Health Care Select Sector SPDR, XLV. The worst is, you guessed it, XLF, its own group. Below are examples of the best weekly charts.

Technology Select Sector SPDR, XLK Weekly Timeframe

Consumer Staples Select Sector SPDR, XLP Weekly Timeframe

Consumer Discretionary Select Sector SPDR, XLY Weekly Timeframe

You can readily see in these charts the rising trend over the last 8 weeks that has been accompanied by the rising RSI and MACD indicator. Also notice the price has been hugging the top of the Bollinger bands, what you would expect in a strong bullish run. The 20, 50 and 100 week SMA’s are all rising as well. The rest of the weekly charts can be found here for comparison.

Daily Analysis

The majority of the daily charts are consolidating in price trend with flattish or sometimes slightly falling RSI and flat or rolling MACD. Most are at the top of the Bollinger band range. This timeframe is not nearly as bullish and in some instances bearish, compared to the loner timeframes. These charts can be grouped into 3 categories also. The best category contains the 2 best charts XLK and XLY (shown below) and XLP and XLU. A slightly weaker group contains XLB, XLE, , XLI and XLV. The worst is, I don’t need to print it do I?

Technology Select Sector SPDR, XLK Daily Timeframe

Consumer Discretionary Select Sector SPDR, XLY Daily Timeframe

You can see in these, the best 2 charts on the daily timeframe that the MACD has gone flat and the RSI, although very high, has also become very flat. The price action in these charts is still positive but has been moving more sideways than up in the last few sessions. You can compare these to the other daily charts here.

Summary

In summary there are two points to take away from this analysis. First, the market in general as measured by the SPDR Select Sector funds looks more bullish the longer the timeframe used, with the monthly charts the most bullish, the weekly slightly less and the daily even less so. Second, one sector, Consumer Staples, XLP, shows up in the top of each timeframe and gets support from Technology, XLK and Consumer Discretionary, XLY on the shorter timeframes. There is also one sector that shows up as the worst on all timeframes, Financials, XLF. Use this information to your advantage and trade well.

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits feed and on chartly.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.