Shades of Pale – Sector Review 10/2/2011

• Posted by Greg Harmon
• on October 2nd, 2011

Stepping back this weekend to look at the Select Sector SPDR’s from a monthly perspective paints a picture of a washed out market. Only faded charts, not the vibrant market of just a few months ago. No one is turning cartwheels across the floor happy about it. There are just shades of pale. So which charts are just ghostly and which are a whiter shade of pale. Let’s take a look.

Fading

The Utilities Select Sector SPDR, $XLU, has been the brightest sector the past few months and has been on a long uptrend since March 2009. But it is starting to show signs of fading. After the 2 1/2 year run higher the last two months have printed potential reversal candles, a Hanging Man and a Long Legged Doji. A careful look at the Relative Strength Index shows that it has stopped rising

Utilities Select Sector SPDR, $XLU

and is moving sideways. Still bullish, but not as powerful and the Moving Average Convergence Divergence (MACD) indicator is slowly starting to move lower. Not time to panic, and still the strongest sector, but a possible sign of the beginning of the end. The Consumer Staples Select Sector SPDR, $XLP, has already started to fade, falling over the last 4 months after topping at a

Consumer Staples Select Sector SPDR, $XLP

138.2% retracement of the move lower from the 2008 highs to the 2009 lows. This is the second best sector, and can stomach a pullback to the extended neckline of the Inverse Head and Shoulders at 27.00 before looking ghostly.

Ghostly

But six sectors are already looking ghostly. The best 4, Energy Select Sector SPDR, $XLE, Technology Select Sector SPDR, $XLK, Health Care Select Sector SPDR, $XLV and Consumer Discretionary Select Sector SPDR, $XLY are all falling from rough Double Tops and near previous support levels from 2009 and 2010. But the chart of $XLE below illustrates the potential for more damage. It printed a bearish Marubozu candle in September, and has a RSI that is falling sharply

Energy Select Sector SPDR, $XLE

with a MACD that is about to cross bearishly negative. Support at teh lower trend line comes at about 50. The other two, the Materials Select Sector SPDR, $XLB and Industrials Select Sector SPDR, $XLI are similar but a bit worse. From the $XLI chart you can see it closed its bearish month on the 100 month Simple Moving Average (SMA) but well below the 2010 support area. It also

Industrials Select Sector SPDR, $XLI

completed a bearish Three Black Crows pattern, with 3 long bodied red candles in a row. The MACD has already crossed lower and it is through the extended neckline of the Inverse Head and Shoulders. All six of these sectors should scare long investors. There is nothing good about these charts.

A Whiter Shade of Pale

And just when you thought you had processed the sectors and were ready to take action there is one remaining sector that looks even worse. The Financials Select Sector SPDR, $XLF, has struggled for 2 years to reach a 38.2% retracement of the move from the 2007 highs to the 2009 lows. Having achieved that horribly low level accomplishment it has now given back 50% of that move. It is currently under support at 12.00 and has the 50% Fibonacci there to cling to,

Financials Select Sector SPDR, $XLF

but below it there is no real support until 5.64, only the pleasant ratio and round number at 10.00. If you turned ghostly looking at the previous sectors this should turn you a whiter shade of pale.

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