Market is a Rotting Rose by Another Name – Sector Review 9/18

• Posted by Greg Harmon
• on September 18th, 2011

In Romeo and Juliet Shakespeare wrote the line “What’s in a name? that which we call a rose, By any other name would smell as sweet”. A rose is a rose is a rose. Such a simple line and used so often to describe the world we view. But also extremely applicable to the world of technical analysis. Over the past few weeks there have been many debates about whether the major indexes and their sector components are in bear flags, or rising wedges, or channels. There is spirited discussion from all sides about the distinction but in the end none of them smell sweet, they all stink. All are about bearish formations after a move lower. With this backdrop deeply ingrained, the past week was a pretty good one for the markets (think less smelly). There were also some changes in the relative leadership in the Select Sector SPDR’s. Lets take a look.

The New Leaders

Two sectors the Technology Select Sector SPDR, $XLK and Consumer Discretionary Select Sector SPDR, $XLY jumped out of the morass to join the Utilities Select Sector SPDR, $XLU as the clear leaders. The $XLU chart below shows that it is flirting with all time highs after a week of over 4.5%

Utilities Select Sector SPDR, $XLU

gains. It may be getting tired though as the Relative Strength Index (RSI) is near 60, where it stalled on the last move higher and is moving sideways. The Moving Average Convergence Divergence (MACD) indicator is rising though as are most of the Simple Moving Averages (SMA). If it can break through to new highs it will confirm an Inverse Head and Shoulders pattern with a target of at least 38.80. A Sector at all time highs? Sounds great until you realize it is the most defensive sector. Then it is not a surprise. But the other two are surprising. Every sector had an up week but using the chart of the $XLK to illustrate, it and the $XLY were relatively the strongest. Both rose through

Technology Select Sector SPDR, $XLK

not only the 20 day SMA but the 50 falling 50 day SMA as well. They both finished the week at the highs and with a strong performance on Friday suggesting continuation. The RSI for each is rising, not stalling, and the MACD is increasing. That is the good news. But you can also see that they are still in their bear flags/rising wedges/channels and have some work ahead to break through them and above the 100 and 200 day SMA’s. The least smelly.

The Old Leaders

The old guard that has been accompanying the $XLU at the top of the garbage heap, the Consumer Staples Select Sector SPDR, $XLP and Health Care Select Sector SPDR, $XLV had decent weeks but are showing the same potential for tiring that the $XLU is. The stronger of the two, $XLP, shown below, is approaching the 100 day SMA where it has failed in the last two

Consumer Staples Select Sector SPDR, $XLP

attempts higher. Notice the RSI stalling without getting over 60 and the MACD stalling as well. It printed a Hollow Red candle Friday, near the Thursday high but without the same urge shown in the $XLK and $XLY. It may go above the 100 SMA next week and the $XLV over the falling 50 day SMA but until then consider them smelly.

The Clearly Rotting

The final four sectors, the Materials Select Sector SPDR, $XLB, Energy Select Sector SPDR, $XLE, Financials Select Sector SPDR, $XLF and Industrials Select Sector SPDR, $XLI not only smell but they look like crap. Oh, each had a nice rise for the week but each ended it with long legged doji signaling indecision and a possible reversal, and with a RSI that is stalled and not over 50. The

Financials Select Sector SPDR, $XLF

chart above for the $XLF could be relabeled as any of the four. Nothing but a bear flag with all of the SMA’s falling. The latest weeks gains came on declining volume. A lot of work to do on these flowers before you could decide that they are not already destined for the compost heap to be next years fertilizer.

There have been some relative changes in the leadership, rotation perhaps, but remember the context is that of a rotting rose. Picking the best one is only for the nimble.

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